Flash Notes-Japan: BOJ Keeps Policy Steady In November As Expected
After expanding monetary easing on 31 October 2014, the Bank of Japan (BOJ) kept its monetarystance unchanged on 19 November, in line with our expectations. It will maintain its pledge to “conductmoney market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.”(from 60-70 trillion yen made in the previous decision on 4 April 2013), buy an additional JPY 30 trillion of JGBsannually and will also extend the average duration of the JGBs held by the BOJ.
The decision was not unanimous as the usual lone dissenter, board member Takahide Kiuchi, voted againstthe action because he considered the policy actions taken before the decision of the “Expansion of theQuantitative and Qualitative Monetary Easing” (QQE) program on 31 October 2014 was appropriate. AndKiuchi also again dissented and proposed a looser timeframe of “medium to long term” to achieve the 2% priceinflation target and designate quantitative and qualitative monetary easing (QQE) as an intensive measure witha timeframe of about 2 years but it was again voted down by 8-1 majority vote [just like the previous MPMssince April 2013].
The BOJ continued to sound optimistic about Japan economic growth assessment despite Japan’s recent fallinto a technical recession saying that it “has continued to recover moderately as a trend…” It did point out someweakness particularly on the production side because of the subsequent decline in decline following the frontloadedincrease prior to the [April 2014] consumption tax hike. There was a slight improvement in BOJ’soutlook for exports as it revised its language to “exports have been more or less flat” while there are signs thatthe decline in housing investments may have bottomed out. Capex or business fixed investments has alsobeen on an improving trend as corporate profit improved.
The BOJ’s near term CPI inflation outlook is downgraded to around 1% (excluding the direct effects of the Aprilconsumption tax) from 1.25% previously while “inflation expectations appear to be rising on the whole from asomewhat longer-term perspective” (from “Inflation expectations appear to be rising on the whole”), comparedto its 6 October statement.
There will be one more BOJ policy decision in 2014 (18-19 December) but we believe the BOJ is unlikelyto add more easing this year. Instead, we will closely follow the 21 December elections as the key risk event.
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