BOJ holds policy steady

Bank of Japan (BOJ) kept the monetary policy unchanged at today's announcement. BOJ will purchasing assets as per its qualitative and quantitative easing (QQE) at a pace of 80 trillion yen per year.

• Today's policy decision was not unanimous but was kept unchanged over 8-1 votes.
  
  
• Member Mr. Kiuchi once again voted against. His proposal was to reduction in purchase so that base rises at ¥45 trillion per annum.
  
  
• BOJ notes steady pace of private consumption that has been boosting GDP growth, while household sector in Japan remain weak, especially after consumption tax hike last year.
  
• BOJ expects CPI to hover around 0% for the time being. It means lower inflation will not be a guide to BOJ policies in future for the time being.
  
• BOJ will keep the purchase in line with previous guidance and will keep the average maturity at 7-10 years.
  
  
• Annual pace of purchase of ETFs and REITs will be about ¥ 3 trillion and ¥ 90 billion respectively.
  
  
• There will be no changes regarding commercial paper and corporate bonds and their size will be maintained at current ¥ 2.2 trillion and ¥ 3.2 trillion respectively.

BOJ running out of options -

• Liquidity concerns in JGB market is weighing on BOJ decisions. BOJ originally started purchasing assets to reach 2% inflation target in next 2 years, however deadline was dropped in later meetings.
  
  
• From inflationary point, BOJ policy seems to have failed so far and it is not clear whether further action to buy government bonds would do any better.
  
  
• However, it might still reach target and increase the pace of purchase without causing liquidity issues by moving into other asset class like municipal bonds, corporate bonds or equities.

Impact -

• Yen strengthened after the policy release, traded 119.7 against dollar. However lost grounds currently trading at 119.9.
  
  
• Today's FOMC minutes will provide guidance ahead.