BOJ: Rates On Hold, CPI & GDP Forecasts Lowered

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Rates Unchanged

At its first policy meeting of the year, the Bank of Japan held rates unchanged. As expected, the bank voted 7–2 in favor of no action.

Rates continue to sit at lows of -0.10%. JGB purchases unadjusted are at an annual level of roughly 80trln JPY. This was decided by a vote of 8-1 in favor of keeping purchase levels the same.

In terms of forward guidance, the BOJ reiterated its message from last time around. It stated that its rates “will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost”.

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Quarterly Inflation Outlook Update

Along with the rate decision and monetary policy statement, the BOJ also updated its quarterly inflation outlook.

Key quotes from the quarterly outlook update:

  • Japan’s economy to continue expanding moderately as a trend
  • Japan’s economy likely to face impact of global slowdown for time being, though effect on domestic demand to be limited
  • Inflation to gradually accelerate toward 2%
  • Risks skewed toward downside for economy & prices
  • Downside risks regarding overseas economies remain high
  • Japan’s economy sustaining momentum for hitting 2% inflation, but momentum lacking strength

In all, the message in the report was once of caution.

While the BOJ still sees the economy expanding in the near term, downside risks require caution. The report was far less hawkish than recent market chatter suggested.

CPI & GDP Forecasts Updated

In terms of updates to CPI and GDP targets from the report, these are the main figures to note:

  • Median core CPI forecast for fiscal 2019/20 at +0.6% vs +0.7% projected previously.
  • Median core CPI forecast for fiscal 2020/21 at +1.0% vs +1.1% projected previously.
  • Median core CPI forecast for fiscal 2021/22 at +1.4% vs +1.5% projected previously.
  • Median real GDP forecast for fiscal 2019/20 at 0.8% vs +0.6% previously projected.
  • Median real GDP forecast for fiscal 2020/21 at 0.8% vs +0.7% previously projected.

In line with the downside risks acknowledged by the BOJ, CPI and GDP targets have been revised lower.



The meeting was a disappointing one for bulls. The BOJ refrained from any hawkish signals at this stage, sounding instead more concerned with the health of the global economy.

However, with targets revised lower, this presents a lower data barrier for JPY over the year. Any upside surprises in Japanese data could see sharp repricing in rate expectations causing upside volatility for JPY.



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