BoJ stands pat, warns of weakening inflation expectations
by Leika Kihara,
2016-03-15 10:11:23.0
TOKYO — The Bank of Japan (BoJ) kept monetary policy steady on Tuesday but offered a bleaker view on the economy and warned of waning inflation expectations, signalling global challenges may justify deploying yet more stimulus ahead.
The central bank also decided to exempt $90bn in short-term funds — dubbed money-reserve funds (MRFs) — from negative rates, amid warnings from the securities industry that investment money would be driven into bank deposits.
As widely expected, the BoJ maintained its pledge to increase base money at an annual pace of ¥80-trillion ($700bn). It also left unchanged a 0.1% negative interest rate it applies to some reserves parked by financial institutions at the central bank.
"Japan’s economy continues to recover moderately as a trend," the BoJ said, warning that a pick-up in exports had paused due to slowing growth mainly in emerging economies.
That was a bleaker view than offered in January, when the BoJ said the economy continued to recover moderately as exports picked up.
The BoJ also revised down its assessment of inflation expectations, saying they were "weakening recently", acknowledging that one of the key channels of its huge stimulus programme was not working as well as had been hoped.
"The BoJ is trying hard to reduce the impact that negative rates are having on the financial sector, because banks have been very critical of this policy," Tokai Tokyo Research Centre economist Hiroaki Muto said.
"The downgrade of the economic assessment is a prelude to further easing," he said, adding that he expected the BoJ to ease monetary policy again in April.
The BoJ unexpectedly cut a benchmark interest rate below zero in January, but the move has failed to boost stock prices or arrest an unwelcome yen rise, drawing criticism from legislators for confusing, rather than calming, markets.
Since then, the BoJ has been in damage control with governor Haruhiko Kuroda scrambling to find positives in the policy that is proving unpopular with the financial community and the public.
In a nod to criticism over January’s decision, the BoJ removed a line from the statement announcing its policy decision that it will cut interest rates further if necessary.
Mr Kuroda is likely to defend January’s unpopular negative rate at his post-meeting news conference.
The economy is skirting recession with some analysts projecting a second consecutive quarter of contraction in January-March as consumer confidence hit a one-year low in February.
Business sentiment worsened sharply in the first quarter and capital expenditure plans were the weakest since 2009, casting doubt on the BoJ’s view that its aggressive money printing will spur investment and wage hikes.
Some BoJ officials have worried that Japan’s recovery may be under threat from cooling global demand and the damage that recent market turbulence is doing to business sentiment.
Slumping energy costs have kept inflation distant from the BoJ’s 2% target while labour unions remain coy in demanding higher pay, adding to headaches for BoJ policy makers.
Reuters
The Bank of Japan. Picture: REUTERS
TOKYO — The Bank of Japan (BoJ) kept monetary policy steady on Tuesday but offered a bleaker view on the economy and warned of waning inflation expectations, signalling global challenges may justify deploying yet more stimulus ahead.
The central bank also decided to exempt $90bn in short-term funds — dubbed money-reserve funds (MRFs) — from negative rates, amid warnings from the securities industry that investment money would be driven into bank deposits.
As widely expected, the BoJ maintained its pledge to increase base money at an annual pace of ¥80-trillion ($700bn). It also left unchanged a 0.1% negative interest rate it applies to some reserves parked by financial institutions at the central bank.
"Japan’s economy continues to recover moderately as a trend," the BoJ said, warning that a pick-up in exports had paused due to slowing growth mainly in emerging economies.
That was a bleaker view than offered in January, when the BoJ said the economy continued to recover moderately as exports picked up.
The BoJ also revised down its assessment of inflation expectations, saying they were "weakening recently", acknowledging that one of the key channels of its huge stimulus programme was not working as well as had been hoped.
"The BoJ is trying hard to reduce the impact that negative rates are having on the financial sector, because banks have been very critical of this policy," Tokai Tokyo Research Centre economist Hiroaki Muto said.
"The downgrade of the economic assessment is a prelude to further easing," he said, adding that he expected the BoJ to ease monetary policy again in April.
The BoJ unexpectedly cut a benchmark interest rate below zero in January, but the move has failed to boost stock prices or arrest an unwelcome yen rise, drawing criticism from legislators for confusing, rather than calming, markets.
Since then, the BoJ has been in damage control with governor Haruhiko Kuroda scrambling to find positives in the policy that is proving unpopular with the financial community and the public.
In a nod to criticism over January’s decision, the BoJ removed a line from the statement announcing its policy decision that it will cut interest rates further if necessary.
Mr Kuroda is likely to defend January’s unpopular negative rate at his post-meeting news conference.
The economy is skirting recession with some analysts projecting a second consecutive quarter of contraction in January-March as consumer confidence hit a one-year low in February.
Business sentiment worsened sharply in the first quarter and capital expenditure plans were the weakest since 2009, casting doubt on the BoJ’s view that its aggressive money printing will spur investment and wage hikes.
Some BoJ officials have worried that Japan’s recovery may be under threat from cooling global demand and the damage that recent market turbulence is doing to business sentiment.
Slumping energy costs have kept inflation distant from the BoJ’s 2% target while labour unions remain coy in demanding higher pay, adding to headaches for BoJ policy makers.
Reuters
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