Japan: No new round of monetary easing, just a reshuffle

EcoFlash

Following its Monetary Policy Committee, the Bank of Japan left the overnight call rate unchanged at around 0% to 0.1%. It also left its inflation and growth prospects broadly unchanged for fiscal years 2012 and 2013. Finally, it reshuffled the composition of its JPY70 trillion stimulus program, refraining from adding more monetary stimulus.

Following its Monetary Policy Committee, the Bank of Japan left the overnight call rate unchanged at around 0% to 0.1%. It also left its inflation and growth prospects broadly unchanged for fiscal years 2012 and 2013 when compared to the April 2012 Outlook for Economic Activity and Prices (see tab).

Indeed the Bank of Japan considers that Japan's economic activity has started picking up moderately as domestic demand remains firm mainly supported by reconstruction-related demand. Meanwhile, financial conditions in Japan have continued to ease. On the price front, the year-on-year rate of change in the CPI (all items less fresh food) is around 0%.

Finally, the Bank of Japan reshuffled the composition of its JPY70 trillion stimulus program, refraining from adding more monetary stimulus. The bank expanded its asset-purchase program to JPY45 trillion from JPY40 trillion, while cutting a credit-loan facility by the same amount. It also announced a removal of the minimum bidding yield (currently 0.1% per annum) for the outright purchases of treasury discount bills and CP in order to ensure their smooth purchases. Thirdly it decided an integration of loan durations (currently "3 months" or "6 months") into "within 6 months" under the fixed-rate funds-supplying operation against pooled collateral in order to respond flexibly to liquidity demand by financial institutions.

The move is mainly a technical adjustment by the Bank of Japan. The BoJ will probably undertake additional easing and increase JGB purchases under its asset purchase programme if it considers that the anticipated moderate recovery is under threat. This could be the case in October, when it publishes its semi-annual report that includes forecasts through March 2015.

Published On Thu, Jul 12 2012, 09:36 GMT Previous entries

Caroline Newhouse

Follow Follow my activity on FXstreet.com BNP Paribas website

Expert in United Kingdom and Nordic Countries.

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