February 14, 2013
BOJ pursues aggressive easing, but outlook slightly better
Japan’s central bank will continue to “pursue aggressive monetary easing” in an effort to reach its 2 percent inflation target but said the country’s economy appears to have stopped weakening and other economies were showing signs of improving, a slightly more optimistic view than last month.
The Bank of Japan (BOJ), which last month doubled its inflation target and launched open-ended asset purchases from 2014 to help keep interest rates low and boost growth, did not specify any targets but just said it would buy assets and pursue monetary aggressive easing “as long as the Bank judges it appropriate to continue with each policy measure respectively.”
Japan has been locked in the grip of deflation and weak growth for almost 20 years but has become much more determined to pull out of the slump after pressure from the new government under Prime Minister Shinzo Abe, who will shortly name a new bank governor to replace Masaaki Shirakawa who is resigning next month.
The BOJ said it would maintain its benchmark overnight call rate steady at 0-0.1 percent, unchanged since 2010 when it lowered the target from 0.1 percent, a goal that was introduced in 2008. The BOJ’s asset purchase program, known as quantitative easing, was also launched in 2010 with the size of asset purchases slowly being increased over the years.
Last month the central bank said it would buy 13 trillion yen of assets every month from the beginning of 2014 when the current 101 trillion yen program expires. Under the new governor, who has yet to be named, the BOJ is expected to increase the size of its asset purchases.
In its statement, the BOJ repeated that it would pursue monetary easing until it achieves its price stability target “at the earliest possible time” and it would be on guard for any signs of an “accumulation of financial imbalances” as it will take “considerable time” before its policy permeates the economy.
Japan’s Gross Domestic Product contracted by 0.1 percent in the fourth quarter, the third quarterly contraction in a row, for annual growth of only 0.3 percent, slightly down from the third quarter’s 0.4 percent.
But noting that overseas economies are picking up, which has eased the pace of the fall in Japanese exports, the BOJ was slightly more optimistic, saying “Japan’s economy appears to have stopped weakening,” compared with last month’s statement that “Japan’s economy remains relatively weak.”
Although business investment is weak there has been some resilience in non-manufacting, public investments is rising, housing investment is picking up, private consumption is resilient and industrial production appears to have stopped decreasing.
Echoing last month’s statement, the BOJ said it expects the economy to “return to a moderate recovery patch as domestic demand remains resilient partly due to the effects of various economic measures and overseas economies gradually emerge from the deceleration phase.”
However, the forecast for inflation has not changed, with the BOJ still seeing consumer prices falling in the short term and then being around 0 percent thereafter, the same outlook it provided last month.
In December Japan’s consumer prices dropped by an annual 0.1 percent – the seventh month in a row with falling consumer prices – compared with November’s 0.2 percent annual decline.