The Bank of Japan held off from further easing at its monetary policy meeting on Thursday, citing evidence of “moderate improvement” in overseas economies and “firm” demand at home.
The central bank said it would aim to keep the total assets it holds under its asset-purchasing program at ¥70-trillion ($893-billion), while leaving its key policy rate unchanged at zero to 0.1 per cent.
In holding fire on further stimulus after a unanimous vote, the BoJ has fallen in with the U.S. Federal Reserve, the European Central Bank and the Bank of England, all of which left key policy settings on hold this month. The Bank of Korea also chose to leave interest rates on hold following its monthly policy meeting on Thursday.
The decision to stand pat was widely expected, said Naomi Fink, head of strategy at Jefferies in Japan. “Overseas demand is not great, but not so horrible to undermine market functions, while domestic demand is not weak enough to merit standalone action.”
Government data on Monday is expected to show that the economy grew at an annualized rate of 2.3 per cent between April and June, about double the developed-world average, assisted by efforts to reconstruct the tsunami-affected areas of northeastern Japan. While more recent indicators are mixed, with industrial production relatively weak, the BoJ said it expected the economy to “return to a moderate recovery path”.
The BoJ has stressed in recent months that in keeping its basic settings on hold, it is still committed to what it describes as “powerful monetary easing”. Assets bought under the APP currently stand at just over ¥55-trillion, meaning that between now and June next year the bank has room for significant stimulus to help keep interest rates low.
Analysts are also anticipating a growing influence on the policy board from Takehiro Sato and Takahide Kiuchi, two former investment-bank economists known for their enthusiasm for unconventional measures to break Japan’s deflationary spiral.
While the duo toed the line at their debut meeting on Thursday, they may push for fresh ideas to be aired in October, said analysts, when the BoJ updates its long-term inflation forecasts.
“They will wait two or three meetings, at least, before making their views clear,” said Atsushi Mizuno, a BoJ board member between 2004 and 2009, and now a vice-chairman at Credit Suisse in Tokyo.
In February the BoJ announced a 1 per cent “goal” for inflation.
In its announcement on Thursday the BoJ said that prices were flat, and that the consumer price index was expected to remain “at around 0 per cent for the time being”.