BOJ takes steps to improve transparency as it holds policy steady

The Bank of Japan (BOJ) stayed the course with its monetary easing at its meeting Friday, but it took steps to improve its transparency by releasing more information about its decisions.

The central bank plans to release a summary of opinions from policy meetings about a week after each meeting. It will also reduce the number of policy meetings to eight times a year from the 14 currently, while increasing the number of economic outlook reports to four from two currently. These steps will bring its practices more in line with other major central banks.

“Sometimes the minutes come a bit too late, in my view, to be of much use,” Alvin Liew, senior economist at UOB, told CNBC. “It makes it more relevant, rather than the minutes coming out after another policy decision has been done.”

He expects the change will improve the BOJ’s transparency and give the market a “better read” on how each member of the policy committee is contributing to the decision process.

Otherwise, however, the BOJ kept its monetary policy unchanged, maintaining an upbeat view on the economy.

In an 8-1 vote, the central bank pledged to increase base money at an annual pace of 80 trillion yen ($660 billion) through purchases of government bonds and risky assets.

Read MoreJapanese consumers remain the weak link

Some of Japan’s economic data has supported the recovery expectations, with gross domestic product (GDP) growth for the first quarter revised higher to an annualized 3.9 percent, up from 1.5 percent in the October-to-December quarter, amid better-than-expected capital spending.

Markets showed little reaction. The Nikkei 225 held onto a rise of around 0.8 percent. The yen was little moved against the U.S. dollar, with the greenback fetching around 122.98.

But while the BOJ stood pat this time, market watchers say further easing is inevitable down the line with the consumer inflation rate far from the BOJ’s target of 2 percent. In April, Japan’s core inflation rose 0.3 percent from a year earlier.

Expectations for more BOJ easing and a weaker yen aren’t likely to change, DBS said in a note Friday before the meeting ended.

“Despite higher wages, consumer spending has remained weak in Japan so far, well below the normal levels seen before last year’s sales tax hike. Meanwhile, inflation numbers are hovering around 0 percent,” it said. “There is insufficient evidence to show that a wage-driven recovery in the domestic economy is already in place, or the demand-driven inflation is already building up. Moreover, exports growth has started to slow.”

Others are also expecting further easing ahead.

“Economic activity likely slowed sharply in the second quarter, and we think that the pace of recovery will remain tepid in the second half of the year,” Marcel Thieliant, an economist covering Japan at Capital Economics, said in note after the decision. He expects the BOJ may step up to 90 billion yen of asset purchases annually, starting in October.

A Japanese flag flies atop the Bank of Japan (BOJ) headquarters in Tokyo, Japan
A Japanese flag flies atop the Bank of Japan (BOJ) headquarters in Tokyo, Japan

To be sure, not everyone thinks the BOJ needs to step up its quantitative easing machine.

“Japan’s got by far and away the world’s most aggressive monetary policy,” Nicholas Weindling, a fund manager at JPMorgan Asset Management, told CNBC. “I’m not quite sure why the BOJ would need to stimulate more, because as far as we can tell, the economy is getting better slowly. Inflation is quite low, but it should tick up as you go the end of the year.”

He noted that while the percentage of increases for wage hikes appears low, it’s still the highest amount since 1998.

“Things seem to be going broadly to plan,” Weindling said, although he noted that as the planned consumption tax hike in 2017 nears, the BOJ may need to reconsider stepping up its easing measures.

Per usual, board member Takahide Kiuchi was the lone dissenter, proposing that the BOJ slash its asset purchases to 45 trillion yen a year.


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