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Bank of Japan stays put but revises GDP forecasts higher

Staff Writer | January 23, 2019
The Bank of Japan decided on Wednesday to stay put on monetary policy, even as it lowered its inflation forecasts and pointed to "downside" risks for both the economy and prices.
Bank of Japan
Asia   Bank of Japan
Nevertheless, rate-setters' forecasts for growth over the next two years were revised higher and more confident than most analysts had anticipated.

Japanese policymakers said the central bank would continue to aim for 10-year government bond yields around 0%, plus or minus a margin of 20 basis points, and continue to purchase 80 trn yen of Japanese government bonds per year.

So too, the interest rate on lenders' deposits with the central bank would be kept at -0.1%, the BoJ said in a statement.

Targets for the purchase of exchange traded funds and real estate investment trusts were also kept unchanged, at 6.0trn and 90.0bn yen, respectively.

Seven of the nine members of the BoJ's Policy Board voted in favour of the decisions adopted at Wednesday's monetary policy meeting.

Of the other two members, Yutaka Harada again insisted the policy stance was too ambiguous, while Goushi Kataoka called for further easing.

In terms of the outlook, the Bank of Japan's rate-setters lowered their forecast range for the rate of growth in GDP for fiscal year 2018 from between 1.3% to 1.5% to a range of 0.9% to 1.0% (consensus: 0.7%).

However, for fiscal year 2019 they now saw GDP expanding by between 0.7% to 1.0%, versus a previous range of 0.8% to 0.9% (consensus: 0.7%).

And for fiscal 2020 they projected that GDP would grow by between 0.7% to 1.0%, instead of the 0.6% to 0.9% that they had previously guided towards.

As for 'core' CPI, the median forecast for fiscal year 2018 from the BoJ's policy board members slipped from 0.9% to 0.8% with that for fiscal 2019 falling from 1.4% to 0.9% (excluding the impact of an expected hike in consumption taxes in October).

The main driver of the lower CPI forecasts was the recent drop in crude oil prices.

But at 1.4% the forecast for core CPI in fiscal year 2020 was little changed versus the 1.5% rise which the BoJ had projected last October.