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BoJ To Hold Rates Steady Until Spring 2020

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The Bank of Japan kept its monetary policy unchanged on Thursday and announced that the interest rates will remain very low for an extended period, at least through spring 2020, reflecting uncertainties concerning economy and prices, and the effects of the scheduled consumption tax hike.

The Policy Board of the BoJ voted 7-2 to maintain interest rate at -0.1 percent on current accounts that financial institutions maintain at the bank.

The bank said it will purchase government bonds so that the yield of 10-year JGBs will remain at around zero percent.

The purchase of government bonds will be conducted in a flexible manner so that the outstanding amount will increase at an annual pace of about JPY 80 trillion.

The decision was widely expected by economists.

The BoJ said it will continue with "Quantitative and Qualitative Monetary Easing with Yield Curve Control" policy to attain the inflation goal of 2 percent and maintain that target in a stable manner.

The bank asserted that it will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeded 2 percent and stayed above the target in a stable manner.

Regarding the economic outlook, the bank observed that the Japanese economy is expected to continue its moderate expansion, despite being impacted by the slowdown in overseas economies for the time being.

The central bank revised down the real GDP growth outlook for the fiscal year ending March 2020 to 0.8 percent from 0.9 percent and that for fiscal year ending March 2021 to 0.9 percent from 1.0 percent.

For the fiscal year ending March 2020, the forecasts for the headline and the core inflation were maintained at 1.1 percent and 0.9 percent, respectively.

The headline inflation forecast for the fiscal year ending March 2021 was cut to 1.4 percent from 1.5 percent and the core inflation forecast was trimmed to 1.3 percent from 1.4 percent.

The central bank expects real GDP growth of 1.2 percent and inflation of 1.6 percent for the fiscal year ending March 2022.

Although the Bank of Japan struck a dovish tone in its monetary policy statement, it is unlikely to lower its policy rates any further due to financial stability concerns, Marcel Thieliant, an economist at Capital Economics, said.

The analyst reckoned that the bank will keep both its short-term policy rate as well as its 10-year yield target unchanged for the foreseeable future driven by concerns about the impact of prolonged monetary easing on the banking system.

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