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BoJ Adopts 2% Inflation Target; Eyes Open-Ended Asset Purchases From 2014

BoJ Adopts 2% Inflation Target; Eyes Open-Ended Asset Purchases From 2014

The Bank of Japan decided on Tuesday to double its inflation target to 2 percent, as sought by Prime Minister Shinzo Abe, in a bid to end deflation. The central bank also announced open-ended asset purchases from next year.

BoJ adopted the new inflation target in a split vote with Policy Board members Takehiro Sato and Takahide Kiuchi voting against the proposal. Seven out of nine members of the board voted in favor.

The bank said it "will pursue aggressive monetary easing, aiming to achieve the above-mentioned price stability target, through a virtually zero interest rate policy and purchases of financial assets, as long as the Bank judges it appropriate to continue with each policy measure respectively."

The Policy Board voted unanimously to keep the benchmark uncollateralized overnight call rate at around 0-0.1 percent.

After completing the current purchasing period, the bank said it will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date, from January 2014. The introduction of the open-ended asset purchasing method was also passed by a unanimous vote.

Following the introduction of this method, BoJ will make monthly asset purchases of JPY 13 trillion, including JPY 2 trillion in Japanese government bonds and JPY 10 trillion in Treasury Bills. As a result, the total size of the asset purchase program will be increased by JPY 10 trillion in 2014, which will be maintained thereafter.

The bank also decided to release a joint statement with the government, to strengthen their policy coordination. Two of the policymakers dissented against this decision.

The bank stuck to its assessment of global economy and said that the overseas economies remained in a deceleration phase. Japan's economy remained relatively weak and exports and industrial production have decreased, the bank said.

BoJ expects the economy to level off more or less for the time being and return to a moderate recovery path as effects of various measures unfold and overseas economies emerge from deceleration phase.

The bank slashed the economy's growth outlook for fiscal 2012 to 1 percent from the October forecast for a 1.5 percent growth. At the same time, the central bank said it expects the outlook for fiscal 2013 to be better than that set out in October as it raised the GDP forecast to 2.3 percent from 1.6 percent.

The outlook for fiscal 2014 was lifted slightly to 0.8 percent from 0.6 percent predicted in October.

BoJ said the year-on-year rate of change in the CPI is expected to turn negative for the time being "due to the reversal of the previous year's movements in energy-related and durable consumer goods, and thereafter, it is likely to be around 0 percent again." The consumer price index is expected to fall 0.2 percent in fiscal 2012, more than 0.1 percent fall predicted in October. The index is expected to rise 0.4 percent in fiscal 2013 and 2.9 percent in 2014. The CPI, excluding the proposed consumption tax hike, is seen rising 0.9 percent in fiscal 2014.

Minister of State for Economic and Fiscal Policy Akira Amari participated in the two-day Policy Board meeting.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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