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BoJ keeps policy unchanged but removes inflation target timing

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The Bank of Japan’s monetary policy meeting held last week on Friday saw no major changes to interest rates or the central bank’s QE program as widely expected. However, the BoJ removed its reference to following a time-frame for achieving the inflation target which surprised some analysts. The BoJ said that this was done in a bid to keep the market expectations for more stimulus in check.

The central bank maintained its pledge to keep the short term interest rates at -0.10% and the yields on the 10-year bonds at or around zero percent. The decision was taken by an 8 – 1 vote.

The BoJ meeting held last week also saw a new member join, Wakatabe who was appointed as the new deputy governor. Wakatabe is said to be an advocate for further easing. However, at last week’s meeting, he defied market expectations and instead voted for keeping the monetary policy unchanged.

There was one dissenting vote at the BoJ meeting today. This was BoJ policy maker Kataoka who preferred to see further easing from the BoJ. Kataoka said that the BoJ should take additional easing if the central bank failed to reach the inflation target.



The BoJ Governor, Kuroda cautioned of the downside risks that could cloud the outlook on prices such as companies staying reluctant to raise wages and the challenge or eradicating the deflationary mindset in the general public.

Speaking at the news conference after the monetary policy decision, BoJ governor, Kuroda said, “While there’s no change to our commitment to achieve our price goal at the earliest date possible, there’s considerable uncertainty on the outlook.”

Kuroda also said that the public perception on the price moves weren’t changing as much as he had hoped for in order for the medium to long term inflation expectations to pick up.

Following the BoJ’s comments of removing the target date for achieving inflation, economists noted that policymakers uncertainty about their ability to achieve the inflation target within the said timeframe. However on the other hand economists note that with the BoJ removing the target for achieving inflation it could potentially deter the markets from speculating on the next policy action from the BoJ.



BoJ removes inflation target time

The major change from the April BoJ monetary policy meeting was of course the omission of the target time frame for achieving the inflation target. The BoJ maintained that this was done in order to prevent the markets from speculating on further easing every time the central bank had pushed back inflation target time frame.

Some view this policy change as a better framework as it could contain the market expectations. By removing the timeframe from its policy framework, analysts note that the BoJ can ease off from facing further pressure if inflation target was once again delayed. This is also expected to have more policy flexibility from the BoJ.

The removal of the inflation target time frame comes at a time when the BoJ Governor’s fifth anniversary as the governor of the Bank of Japan. The BoJ Governor was at the forefront of Abenomics in 2013 when he announced the massive stimulus program in a bid to end decades of deflation in the Japanese economy. As part of this, the BoJ also targeted the inflation rate of 2%. Kuroda had initially pledged to achieve the inflation target in two years and the inflation target date kept getting pushed further away.

BoJ upgrades economic assessment

The Bank of Japan also released its assessment of the economy, the quarterly projections. The central bank left the inflation forecast for the next fiscal year at 1.8% which was unchanged from the previous projections.



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