BoJ Keeps Policy Steady, but Newcomer Seeks Easing

The Bank of Japan kept monetary policy steady and roughly maintained its ambitious price forecasts on Tuesday, pointing to signs of growing strength in the economy that policymakers hope will accelerate inflation toward its elusive 2 percent target.

Board newcomer Goushi Kataoka made no proposal on additional easing, defying market expectations he might do so after dissenting to last month’s BOJ decision to keep policy steady.

But he said the central bank should make clear its readiness to expand stimulus again and commit, via its bond purchases, to keeping the yield on longer-term bonds low.

“If there were a delay in the timing of achieving the price target due to domestic factors, the BOJ should take additional easing measures,” Kataoka said, according to a statement issued by the central bank.

As widely expected, the BOJ kept intact a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year bond yield around zero percent by a 8-1 vote. Kataoka dissented to the decision to stand pat.

While not an official proposal for easing, Kataoka said the BOJ should buy government bonds so 15-year yields “remain at less than 0.2 percent”. The 15-year government bond yield stood around 0.307 percent on Tuesday.

“I don’t think Kataoka’s argument will sway the majority view of the board,” said Ryutaro Kono, chief economist at BNP Paribas Securities, noting the board felt no need for further easing as long as the economy kept recovering.

“That said, inflation is unlikely to accelerate beyond 1 percent in the near future. Therefore the BOJ is unlikely to head for an exit or ease policy further.”

BOJ Governor Haruhiko Kuroda reiterated the central bank’s pledge to maintain its “powerful” monetary easing until inflation is stably above 2 percent.

“The economy is sustaining its momentum to achieve 2 percent inflation, but the momentum remains weak,” he told a news conference.


In a quarterly review of its projections, the BOJ slightly cut its inflation forecasts for the current fiscal year ending in March 2018 but roughly maintained its optimistic projections for the following years.

It also maintained its view that inflation will hit the 2 percent target by March 2020.

“Japan’s economy is expected to continue expanding moderately,” the BOJ said in the report released after the rate review, signaling its confidence in a strengthening recovery.

The dissent by Kataoka, a former private economist, could complicate the BOJ’s efforts to follow the footsteps of its U.S. and European counterparts in dialing back stimulus, albeit gradually, analysts say.

“Other central banks are unwinding easy policy, so distortions will emerge if the BOJ continues with its current framework,” said Hiroaki Muto, an economist at Tokai Tokyo Research Center.

“If Kataoka proposes more easing, it just complicates things further. There are no hawks on the board, so the BOJ could lose its chance to normalize policy.”

Japan’s economy expanded at an annualized 2.5 percent in the second quarter as consumer and corporate spending picked up, with steady growth likely to be sustained in coming quarters.

But core consumer prices rose just 0.7 percent in September from a year earlier, well below the BOJ’s target, keeping the bank under pressure to maintain its ultra-easy policy.


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Dean Popplewell

Dean Popplewell

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