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Bank of Japan maintains stimulus as inflation lags behind growth
[TOKYO] The Bank of Japan (BOJ) left monetary stimulus unchanged in the final policy meeting of 2017, remaining on cruise control as it waits for a pickup in stubbornly low inflation.
The central bank will continue to target interest rates and buy financial assets to achieve its two per cent inflation goal, it said in statement on Thursday. The result was predicted by all 44 economists surveyed by Bloomberg.
With Japan's economy continuing to grow at a healthy pace, and inflation at least moving in the right direction, there is little pressure on the BOJ to act any time soon. This sets it apart from its global counterparts, with the Federal Reserve hiking interest rates and the European Central Bank (ECB) moving closer toward policy normalisation.
Economists and investors are looking further ahead, with some speculating that the BOJ will join some of its international counterparts in tightening policy next year. Governor Haruhiko Kuroda's press briefing later Thursday will be parsed for clues as to whether and when that might happen.
"Next year, if the current economic growth trend continues then there should be ever increasing expectations for monetary policy normalisation," said Junko Nishioka, chief economist at Sumitomo Mitsui Banking Corporation and a former BOJ official.
The BOJ board's vote on Thursday was 8-1 on policy rates and unanimous on asset purchases. Goushi Kataoka, who joined the board in July, dissented on the policy rates.
The BOJ hasn't altered its policy framework since September 2016, when it implemented its yield-curve control program, setting an interest rate of -0.1 per cent on some bank reserves and a target of around zero per cent for 10-year government bond yields. It also continues to buy enormous amounts of assets, mostly Japanese government bonds.
In a sign of how little pressure Mr Kuroda faces to take additional action, he has been called to parliament only 19 days this year. That's down from 51 days last year and is the fewest for any BOJ governor since 2007.
Japan's economy is now in the longest expansion in more than two decades. Gross domestic product grew 2.5 per cent in the third quarter, while confidence among large manufacturers rose to the highest level since the global financial crisis. Even so, prices excluding fresh food rose only 0.8 per cent in October, well below the BOJ's target.
In its statement Thursday, the BOJ offered a slightly more upbeat view of business investment and private consumption, and noted steady improvement in employment and incomes, but also said inflation expectations remain in "a weakening phase".
"The BOJ is gaining confidence in the strength of the economic recovery and tweaking the language of its assessment of economic conditions to indicate their optimism," said Maiko Noguchi, a senior economist at Daiwa Securities and a former BOJ official. "But it's too early to think that optimism will lead to a policy change soon as their view on inflation hasn't changed at all."
Economists from Barclays and Nomura Securities are among 19 predicting the BOJ will begin normalising policy next year, according to a Bloomberg survey of 44 economists. Analysts at Credit Suisse and Oxford Economics are among the few who see further easing as the BOJ's next step.
Mr Kuroda's comments last month on the "reversal rate" theory stoked speculation about an earlier policy exit. The theory posits that monetary stimulus could end up hurting commercial banks' profitability, making them less likely to lend.
The comments weren't meant as a policy signal but were intended to point out the risks of additional stimulus after Mr Kataoka's calls for more, according to people familiar with the central bank's discussions.