Bank Of Japan keeps its policy unchanged
THE BANK OF JAPAN refrained from expanding monetary stimulus ahead of the UK vote on Brexit next week that could roil global markets, and before a domestic election in which the political opposition has made the bank’s negative interest-rate policy an issue.
With the yen soaring to its strongest in almost two years after the decision last Thursday, Governor Haruhiko Kuroda reiterated in a press conference in Tokyo that the central bank won’t hesitate to take action if needed. He also said the central bank was carefully monitoring moves in financial markets and was in touch with counterparts including the Bank of England, amid Brexit concerns that he said had had an impact in the bond market. Japan’s bond yields slid to record amid demand for haven assets.
The governor also reiterated his expectation for inflation to hit policy makers’ two per cent target as forecast in the fiscal year through March 2018, said Japan’s economy continues to expand gradually and cited solid plans for business investment. Even so, he noted that it’s possible that excessive gains in Japan’s exchange rate could affect prices.
“Speaking of the strengthening yen, we think it’s not favourable that the yen rises and volatility increases without reflecting economic fundamentals,” Kuroda said after the yen climbed through 104 per dollar for the first time since 2014. “We want to carefully watch and pay
Speaking of the strengthening yen, we think it’s not favourable that the yen rises and volatility increases without reflecting economic fundamentals. Haruhiko Kuroda, Governor of Bank Of Japan
attention to the international financial market, including the foreign exchange.”
The BOJ earlier held its key interest rate at minus 0.1 per cent and kept the annual target for expanding the monetary base at 80 trillion yen (RM3 trillion). About 28 per cent of economists in a Bloomberg survey had forecast additional easing at this meeting, with 55 per cent looking to the next gathering on July 29, when the BOJ will update its inflation projections.
By holding off on further expansion now, Kuroda can better consider the path of US monetary policy, watch the impact of Britain’s vote and see the outcome of a Japanese upper house election on July 10. The governor declined to comment on the possibility of an unscheduled BOJ meeting ahead of the next gathering on July 28 to July 29.
“The BOJ will have to take bold action to arrest the strengthening yen and if it tries something in line with what it did before, there’ll be disappointment,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “With the Brexit vote ahead, the BOJ couldn’t move this time because the result on June 23 may erase the impact of whatever it did now.”
The yen has now surged more than 15 per cent this year, even with the introduction of negative rates.
The Topix stocks index closed down 2.8 per cent.
If the UK votes for Brexit, the Japanese currency may gain as much as six yen per dollar and while the Nikkei 225 Stock Average could drop by 3,000, according to a report by Mizuho Research Institute earlier this month.
The BOJ’s immediate outlook for inflation deteriorated, something that’s sure to reinforce expectations for board members to trim their projections when they update these at the July meeting. Thursday’s statement said the year-on-year change in consumer prices is “likely to be slightly negative or about 0 per cent for the time being.” In April, the BOJ said it is “likely to be about 0 per cent for the time being.”