Why no surprise from BOJ?

Bank of Japan (BOJ) kept monetary policy steady in today's meeting, which was no major surprise for many but some expected to BOJ to increase its asset purchase pace. Yen gained some grounds after the announcement.

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.

BOJ might surprise markets with additional easing early next year, according to some analyst. However previous call to ease policy in October was a complete failure.

Key highlights -

• As per BOJ, Japanese economy is recovering moderately. However its exports and production have taken hit over slowdown in emerging markets. But it notes that overseas economies are doing well in spite of slowdown across EM economies.
  
  
• It notes that household investment picking up in the economy and private consumption, employment situation resilient and financial conditions are accommodative.
  
  
• BOJ notes that despite headline inflation at zero percent, inflation expectation 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 blames energy prices behind lowflation.
  
  
• BOJ member Mr. T. Kiuchi once again voted against current policy and voiced in reduction of asset purchase to ¥ 45 trillion.
  
  
• According to BOJ, risks lie in slowdown in emerging and commodity exporting economies as well as pace of economic recovery in Europe and US.

Today's statement indicates that policy is likely to remain same until some further adverse conditions demand else. Even the policy statement remained almost same from prior.

So why BOJ is halting further asset purchase in spite of recession and deflation/disinflation?

• There are not enough political will for further easing as with weaker foreign demand, weaker Yen is unlikely to do much help. Moreover if domestic demand is resilient it might worsen Japan's terms of trade.
• Moreover, it makes sense for Bank of Japan (BOJ) to wait out the actions of European Central Bank (ECB) and US FED.
• If BOJ continues current pace of purchase by 2019, it would hold 100% of the outstanding bonds for some maturity. Any increase in pace would mean the date to come closer.

Yen is currently trading at 123.1 against Dollar.