The BOJ monetary policy statement and updated outlook came out yesterday:
- BOJ announcement - no change to policy but revisions to forecasts
- The Bank of Japan ... "is in no hurry to reach its 2% inflation target"
- Brand new year, same old Bank of Japan
- BOJ's Kuroda: Oil drop is key reason for downgrades in price outlook
- BOJ's Kuroda: Central bank will take additional measures if needed
- BOJ's Kuroda: Expects negative impact of sales tax hike to be limited
- BOJ's Kuroda: Vital to achieve inflation target first, then normalise policy
- Recap: BOJ cuts inflation outlook, nothing new from Kuroda
Scanning through some of the responses elsewhere this caught my eye, from Capital Economics (in brief from their their detailed note, bolding is CEs)
we think that the hurdles to further easing are high
- The shift to a yield target means that there's little appetite for an increase in bond purchases. While the Bank today reiterated its commitment to expand its holdings of Japanese Government Bond by ¥80 trillion per annum, actual purchases were less than ¥40 trillion last year. That's because the Bank already owns nearly half of all outstanding government bonds and has been able to keep 10-year yields close to its 0%-target with ever smaller purchases.
The Bank could of course lower its policy rate or its yield target.
- But the Board has been signalling for a while that lowering interest rates even further could hamper banks' willingness to lend and thus weaken rather than strengthen economic activity. The Bank today repeated its stance from October that the risk of a pull-back in financial intermediation was not significant at the moment, though it was "necessary to closely monitor future developments".
All told, we think that it would require a very sharp slowdown for the Bank to reduce interest rates any further. The upshot is that policy settings will probably remain unchanged both this year and next.
