BOJ monetary policy: Assessing future bias

Bank of Japan (BoJ) kept the policy unchanged, and interest rates at -0.1 percent.

Let’s look at the current monetary policies,

• Bank of Japan has already shifted the timeline for reaching the 2 percent inflation goal to “earliest possible time” in the last meeting and with that view, it introduced QQE with yield curve control. It means that the bank would guide both short term and long term rates, while purchasing assets at the pace of ¥80 trillion per annum, until the inflation overshoots the 2 percent target and stays above.
• For short-term rate controls, BoJ will maintain a negative interest rate of -0.1 percent and for the long-term rate control, it would purchase assets in such a manner that the 10-year yield remains around the current level of zero percent.
• BoJ has scrapped the maturity target, which was previously 7-12 years.
• In addition to that, BoJ would use fixed rate purchases of JGBs and fixed rate funds supplying for a period up to 10 years.
• The bank will continue to purchase ETFs at ¥6 trillion per annum, CPs at ¥2.2 trillion annually, corporate bonds at ¥3.2 trillion annually, and J-REITs at ¥90 billion per annum.

Key takeaways from the economic outlook -

• Japanese economy likely to keep growing at above potential pace through the fiscal year 2018.
• Inflation to remain negative or zero in the near term but is projected to rise towards 2 percent in the second half of the projection period.
• BoJ feels that the risks to the economy are skewed to the downside.
• BoJ says that it would continue with its monetary policy as long as necessary. The bank would do adjustments as necessary.

In recent days, the yen has started to weaken against the dollar and currently trading at 104.8 per dollar. We expect the yen to weaken towards 112 per dollar.