Friday, 22 June, 2018

Japan's cenbank keeps policy unchanged, talks down prospect of near-term stimulus end

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Nellie Chapman | 23 January, 2018, 14:49

The Bank of Japan opted Tuesday to keep intact its unprecedented monetary stimulus despite an uptick in growth, sticking with its massive asset purchases and a negative interest rate policy aimed at spurring inflation.

In its quarterly report on prices and economic activities, the Bank of Japan again said "risks to prices are skewed to the downside" and "developments in prices continue to warrant careful attention".

While the yen briefly rose against the dollar on the tweak in statement language, Kuroda later put to rest any expectations of a near-term policy tightening.

As widely expected, the BOJ maintained a pledge to guide short-term interest rates at minus 0.1 percent and 10-year bond yields around zero percent at its two-day rate review that ended on Tuesday. In a small sign of progress, it said inflation expectations had stopped falling.

Governor Haruhiko Kuroda gave few clues about any timeline for pulling back the bank's huge asset-buying programme, shrugging off market expectations.

With the economy growing and inflation slowly but steadily rising, some investors have started to bet that the BOJ is nearing the point where it begins to normalize its ultra-loose monetary policy. The yen gained strength after the BoJ cut its bond purchases earlier this month.

Earlier in the day, the greenback dropped as low as near ¥110.50 after the BOJ announced its decision at the policy meeting to revise upward its inflation and economic growth forecast ranges for fiscal 2018 while keeping the current easing policy unchanged.

Consumers and households, amid stagnant wages and concerns for Japan's economic outlook - despite a fairly solid track record recently - have continued to tighten their purse strings, economists have highlighted.

Investors shouldn't read too much into its daily bond operations as they don't send any signals on longer-term intentions, Kuroda said a year ago.

And even a minority of BOJ policy makers are raising the need for future discussions on normalising policy, though they agree that the stimulus program must continue unchanged for some time, according to people familiar with central bank's discussions.

The figure is a long way short of the central bank's target, delayed multiple times, of achieving an inflation rate of 2 percent.

The BoJ appears to be gaining confidence in its view of inflation, but that doesn't mean a policy change is coming soon, said Maiko Noguchi, a senior economist at Daiwa Securities and a former BoJ official.

Japan's core consumer price index, with the exception of fresh food prices, increased 0.9 percent on year in November, marking the 11th straight month of increase, but if energy prices are also excluded, consumer prices increased a mere 0.3 percent in the recording period. "I think that will be when talk of policy adjustment comes up".