The Bank Of Japan Said It Would Keep Interest Rates Extremely Low Though At Least Around Spring 2020 to assure investors that monetary policy will remain highly accommodative, even as the negative side effects of stimulus pile up.
A change to forward guidance was predicted by only 3 of 48 economists surveyed by Bloomberg. The central bank now projects that it won’t hit its 2 percent inflation target at least through March 2022, which will be nine years since Governor Haruhiko Kuroda launched its radical program to reflate prices.
The outlook for the BOJ is a worrying sign for some of its global peers, who are struggling with their own stubbornly low inflation and facing talk of “Japanification.” The BOJ’s stance Thursday underscores that it has limited tools to stoke inflation or cope with a severe economic downturn, and must keep a close eye on side effects.
The BOJ said in its policy statement that it was “making clearer its policy stance to continue with powerful monetary easing,” vowing to maintain extremely low short- and long-term interest rates at least through around spring 2020.
Previously, the BOJ pledged to keep interest rates extremely low for “an extended period” while monitoring uncertainties surrounding the impact of a sales-tax hike scheduled to take place in October.
In explaining its decision to extend its forward guidance, the BOJ flagged “high uncertainties” in the outlook for economic activity and prices, including developments in overseas economies.
Kuroda will hold a news conference at 3:30 p.m. in Tokyo. He will likely face questions about why the BOJ didn’t take steps to strengthen stimulus, given his past vows to take preemptive steps to hit the inflation target as soon as possible. His views on risks to the global economy will also be a focus.
Kuroda has maintained that momentum toward the price goal remains intact.
A growing number of economists say more monetary easing of some type will be forthcoming. Nearly half of economists now expect the next policy move by the BOJ will be more monetary easing, up from 14 percent in December.
Yet rising side effects, some of which were highlighted in a semi-annual report on the financial system last week, are likely to constrain the central bank. One gauge of real estate lending has turned “red” for the first time since 1990, though the BOJ said the market itself showed no signs of overheating.
The BOJ said it would consider introducing a lending facility for its exchange-traded fund holdings, a move that could address criticism that the central bank’s purchases harm liquidity in ETFs and equity trading.
- A rate of -0.1 percent on some reserves financial institutions keep at the central bank.
- Yield target of about zero percent for 10-year Japanese government bonds, with a trading range of about 0.2 percentage point on either side of the mark.
- A target of increasing JGB holdings by about 80 trillion yen ($715 billion) a year is now secondary to controlling interest rates. The actual pace of purchases has fallen to well below half that rate.
- A guideline to increase holdings of exchange-traded funds by 6 trillion yen a year. Actual purchases vary widely from month to month, depending on market conditions.
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