BOJ begins 2-day meeting, no policy change expected
THE Bank of Japan began a twoday policy meeting on Thursday, where it is expected to maintain aggressive monetary stimulus with inflation still far below its 2 percent target.
A decision to stand pat would keep the central bank in stark contrast to the U.S. Federal Reserve, which raised interest rates on Wednesday and signaled two more hikes this year, and the European Central Bank, which is eying an end to its own asset purchase program.
Conditions in Japan are also improving on the back of robust exports and solid appetite for capital expenditure, with real gross domestic product expanding for eight straight quarters before a slight contraction in the January-march quarter, which economists say was likely a temporary soft patch.
But tepid wage growth and rising living costs have kept households from loosening their purse strings, preventing companies from gaining the confidence to raise the prices of goods and services.
The BOJ sees 2 percent inflation as consistent with stable economic growth. While increases in core consumer prices, which exclude fresh food and energy prices because of their volatility, had been steadily gaining momentum through February, they slowed in March and again in April to a 0.7 percent rise from a year earlier.
Given the situation, Governor Haruhiko Kuroda and his fellow board members are expected to keep the BOJ’S current easy policy of buying up government bonds to push the benchmark 10-year yield near zero percent and applying a negative interest rate of minus 0.1 percent on some funds that financial institutions keep at the central bank.
Kuroda may reiterate at his post-meeting press conference a pledge to maintain accommodative policy until the inflation goal is reached, though the removal of the de facto target date of fiscal 2019 from official communications earlier this year suggests it is beginning to hold less significance within the BOJ.
Another reason Kuroda is unlikely to pull back stimulus is political. Prime Minister Shinzo Abe, who appointed Kuroda in 2013, is seeking a third consecutive term as head of the ruling Liberal Democratic Party in an internal election in September. A policy shift now would risk reducing support for the premier who is already suffering from a series of cronyism scandals.
Meanwhile, the BOJ’S ninemember board is also likely to discuss the harmful effects of the stimulus on the economy, such as the hit being dealt to the earnings of commercial banks. The topic of rising tensions between the United States and its largest trade partners may also be raised. – Kyodo