BOJ monetary policy review

Bank of Japan (BOJ) kept monetary policy steady in today's meeting, which was no major surprise. Yen also showed no signs of major movement. Inaction was priced in very well.

Bank of Japan (BOJ) kept policy rates on hold at 0.10% and maintained the pledge to increase monetary base by ¥ 80 trillion per annum.

Despite, unchanged monetary policy, the new format of monetary policy provides some guidance on what can be expected in future.

Key highlights -

• As per BOJ, Japanese economy is recovering moderately. BOJ notes that despite headline inflation at zero percent, inflation expectations from longer term perspective is rising. It can clearly be inferred that BOJ is likely to hold policy steady at current level for some time. Focus remains on 'moderately' growth and comments on inflation.
  
  
• BOJ member Mr. T. Kiuchi once again voted against current policy and voiced in reduction of asset purchase to ¥ 45 trillion.
  
  
• Policy report shows, median estimates and the range for BOJ's growth forecast has eased somewhat from April. Japan's GDP is expected to grow 1.5% this year compared to 2% envisaged in April. Growth will slow to 1.5% in 2016 and +0.2% in 2017.
  
  
• However, BOJ is expecting CPI to recover faster. This year it is forecasted to be around 0.7%, lower than 0.8% envisaged in April. CPI for next year was revised to 1.9% from 2% in April. CPI is expected to be lower in 2017 to 1.8% as per today's forecast.

Today's statement indicates that policy is likely to remain same until some adverse conditions demand else. BOJ is likely to wait the FED before further move.

BOJ's continued massive easing likely to keep yen well offered, only to be intervened occassionally by risk aversion.