BOJ keeps policy unchanged as it shifts to wait-and-see mode
Tokyo, Japan – The Bank of Japan (BOJ) left its monetary stimulus programme unchanged as it settled in to gauge the impact of its first policy adjustments in nearly two years in July.
The Japanese central bank maintained its ten-year bond yield target, asset purchases and guidance on interest rates at the end of a two-day meeting on Wednesday. The result was predicted by all 51 economists surveyed by Bloomberg.
The decision leaves the BOJ even further behind its global peers, who are moving to return to pre-crisis monetary policy. The US Federal Reserve is expected to raise interest rates again next week, and the European Central Bank said it planned to phase out its bond-buying by the end of the year.
Under governor Haruhiko Kuroda, BOJ is widely expected to stick with the current basic settings until 2020, while monitoring the build-up of side effects, the Bloomberg survey found. Inflation is only about halfway to the central bank’s two per cent target, while a sales-tax increase scheduled for the second half of 2019 would pose a challenge to con- sumption and growth.
"It’s time now for BOJ to monitor the effects of the policy adjustments it made in July," said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co in Tokyo.
BOJ will face challenges ahead as it tries to sustain Japan’s economic expansion and push inflation closer to two per cent. Near-term risks include the Hokkaido earthquake, typhoons and a record-breaking heat wave. All are expected to weigh on third-quarter growth.
Koji Fujiwara, head of the Japanese Bankers Association, said last week that he wants to step up monitoring of the impact on banks given the central bank’s pledge to keep interest rates ~ extremely low for an 'extended period.'
BOJ may decide to adjust policy again in the middle of next year if it determines the recent changes weren’t enough to offset the side effects on the JGB market, said Kyohei Morita, chief Japan economist at Credit Agricole Securities Asia.