BoJ stands pat in pursuit of 2% inflation
Board newcomer Kataoka dissents
TOKYO: The Bank of Japan decided yesterday to keep its aggressive monetary easing measures unchanged, continuing the pursuit of its elusive 2% inflation target.
The central bank’s Policy Board agreed by an 8-1 majority vote at a two-day meeting to continue its large-scale asset purchase programme and negative interest rate, while one new board member — economist Goshi Kataoka — dissented, saying that current measures were not enough to reach the price target.
“The board decided that the current monetary policy is sufficient to reach the inflation target. We will ease more if necessary,” governor Haruhiko Kuroda told a press conference at the bank’s Tokyo headquarters.
The decision keeps the BoJ on a diverging path from major US and European peers that are moving toward normalising financial policy by unwinding crisis-era stimulus programmes.
A day earlier, the Federal Reserve said it would begin trimming its roughly $4.5 trillion asset holdings in October and still expects to raise interest rates once more within the year. The European Central Bank has also appeared more hawkish, signaling it is preparing to draw back its asset purchases.
“The Fed’s decision doesn’t affect our policy, which we decide according to our view of economic conditions in Japan,” Kuroda said.
The bank kept its assessment of the economy unchanged from its July meeting, describing it as “expanding moderately.”
Japan’s gross domestic product grew an annualised 2.5% in the three months through June and unemployment has remained low at 2.8% in recent months. But inflation has remained tepid. Despite the tight labour market, wage growth has been slow and private consumption has lagged due to what economists call a deflationary mindset caused by years of declining prices.
The core consumer price index, the BoJ’s main gauge of inflation, rose by just 0.5% in July from a year earlier, still far off the 2% target.
“The economy is strengthening but with the inflation target so far away, and its policy stance already so easy, the BoJ had very little room to move in either direction,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc.
At the July meeting, the BoJ pushed back the projected timing of achieving the goal to around fiscal 2019, the latest in a series of delays from its initial projection of early fiscal 2015.
This means that unless Kuroda gains another term after his current one ends next April, the task of hitting the target — and eventually winding down the easing measures — will fall to his successor.
Measures upheld at yesterday’s meeting include buying of government bonds so as to keep the 10-year yield, the benchmark of long-term interest rates, near zero%. It also kept the rate on some funds that financial institutions park at the bank at minus 0.1%.
Regarding Kataoka’s dissent, SMBC’s Maruyama said it was unclear if he took exception to the current framework targeting the yield curve between short and longterm interest rates.
Kataoka is one of two board members, along with former banker Hitoshi Suzuki, who made their policy meeting debut this week.
The board also maintained its guidance to buy bonds at a pace that expands the BoJ’s holdings by an annual 80 trillion yen ($717 billion), though in reality that amount has fallen near 60 trillion yen in recent months.
Kuroda introduced an aggressive stimulus package in 2013 as the cornerstone of Prime Minister Shinzo Abe’s economic policy.
Economists warn that such long-running easing has troubling side effects on the finance industry and markets, and that the central bank will incur huge losses during the exit.
But Kuroda downplayed such worries yesterday, saying “I stress that nothing abnormal is going to happen when we end the stimulus.”