Japan Leaves Monetary Policy Unchanged

BOJ 061616

The Bank of Japan kept its monetary stimulus unchanged on Thursday, as policymakers await to the see the full impact of the negative policy introduced early this year.

Governor Haruhiko Kuroda and his board members decided by an 8-1 majority vote to hold its target of raising the monetary base at an annual pace of about JPY 80 trillion.

The board decided by a 7-2 majority vote to maintain the -0.1 percent interest rate on current accounts that financial institutions maintain at the bank. The outcome of the meeting matched expectations.

The bank said the Japan's economy is likely to be on a moderate expanding trend.

The economy expanded by an annualized 1.9 percent in the first quarter. As risks from weak global demand and strong yen remain, Prime Minister Shinzo Abe postponed lifting the sales tax to 2019 from 2017.

Annual inflation is likely to be slightly negative or about 0 percent for the time being, due to the effects of the decline in energy prices, the BoJ said.

Policymakers will respond to the recent moderation in underlying inflation by stepping up the pace of easing next month when it updates inflation outlook, Marcel Thieliant at Capital Economics, said.

Sluggish inflation risks further undermining household inflation expectations, thus further reducing the chances of hitting the target in the future, the economist noted.

Thieliant expects the BoJ to step up the annual pace of expansion of the monetary base from the current JPY 80 trillion to JPY 90 trillion, and cut the policy rate from -0.1 percent to -0.3 percent.

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