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Japan: BoJ fears a return to deflation
Thu, Jan 22 2009, 13:14 GMT
by Flemming J. Nielsen
Overview: Bank of Japan (BoJ) today, as expected, left its leading O/N target rate unchanged at 0.1% in a unanimous board decision. In addition, BoJ revised its GDP forecasts sharply lower for both FY 2008 and FY 2009. Although BoJ still avoids using the D-word, it appears that it is becoming increasingly concerned about the possibility of a return to deflation in Japan. With the O/N target rate close to zero, the O/N target rate is no longer the main monetary instrument. As we stressed in our recent paper, BoJ has effectively turned to some kind of quantitative easing with the main focus on maintaining credit flows and boosting BoJ's balance sheet. Moving in this direction, BoJ today announced the final detail in its plans to purchase commercial paper and will possibly soon start to purchase corporate bonds outright in the market.
Published on Thu, Jan 22 2009, 13:17 GMT
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