BOJ Keeps Easing Policy Intact, Lagging in Normalization

June 15, 2018

Tokyo- The Bank of Japan decided to leave its ultraeasy monetary policy unchanged at its two-day Policy Board meeting that ended on Friday, further lagging behind its U.S. and European counterparts in policy normalization.

As the BOJ is still far from realizing its 2 pct inflation target, the nine-member board concluded that the central bank needs to continue its current accommodative policy for the time being.

The board decided by an eight-to-one vote to continue guiding 10-year Japanese government bond yields to around zero pct and applying the BOJ's short-term policy interest rate of minus 0.1 pct to part of commercial financial institutions' current account deposits at the central bank.

The BOJ will keep buying JGBs to boost its holdings by about 80 trillion yen a year.

"It's too early to talk about a specific method or process of normalization at the moment, as the 2 pct target remains far off," BOJ Governor Haruhiko Kuroda told a press conference following the policy review.

At the same time, he underscored the need to be "very careful about risks if domestic interest rates remain low for a prolonged period" reflecting the superloose BOJ policy.

On Wednesday, the U.S. Federal Reserve raised its policy interest rate by 0.25 percentage point to 1.75-2.0 pct at its Federal Open Market Committee meeting, carrying out the second rate hike this year. The Fed is expected to implement two more rate hikes by the end of 2018.

The European Central Bank decided Thursday to end its quantitative easing at the end of this year.

By contrast, the BOJ has been facing difficulties attaining the 2 pct price stability target. Japan's core consumer price index, excluding fresh food, rose 0.7 pct in April from a year before, according to recent government data.

Discussing the policy differences between the BOJ and the U.S. and European central banks, Kuroda pointed to the persisting deflationary mindset among Japanese people.

Still, the BOJ said in a statement issued after the latest policymaking meeting, "Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating," thus leaving the bank's basic economic view unchanged.

Also in the statement, the bank said that the year-on-year growth in the country's core CPI is in the range of 0.5-1.0 pct now, against around one pct cited in a BOJ report in April.

The BOJ did not change its price outlook, however, saying that the pace of CPI growth is likely to increase toward 2 pct. Japan's economy "is likely to continue its moderate expansion," the bank said, also leaving the projection unchanged.

As for risk factors, the BOJ cited "the U.S. economic policies and their impact on global financial markets," implicitly referring to protectionist measures by the administration of U.S. President Donald Trump. The BOJ also expressed concern over "geopolitical risks," keeping the North Korea situation in mind.

At the meeting, Goshi Kataoka, one of the board members, voted against the monetary policy status quo, calling on the BOJ to take additional easing steps. Jiji Press