The Bank Of Japan

Bank of Japan Rate Statement July 2018 | Direct Link |


At the Monetary Policy Meeting (MPM) held today, with a view to persistently continuing with powerful monetary easing, the Policy Board of the Bank of Japan decided to strengthen its commitment to achieving the price stability target by introducing forward guidance for policy rates, and to enhance the sustainability of "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control."


(1) Forward guidance for policy rates [Note 1] The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019.


(2) Yield curve control The Bank decided, by a 7-2 majority vote, to set the following guideline for market operations for the intermeeting period. [Note 2] The short-term policy interest rate: The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.


The long-term interest rate: The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices. 1 With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.


(3) Guidelines for asset purchases With regard to asset purchases other than JGB purchases, the Bank decided, by a unanimous vote, to set the following guidelines.


a) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions.


b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.


In addition, the Bank decided to make the following adjustments in accordance with the measures described above.


a) Change in the size of the Policy-Rate Balance The Bank, under the condition that yield curve control can be conducted appropriately, will reduce the size of the Policy-Rate Balance in financial institutions' current account balances at the Bank -- to which a negative interest rate is applied -- from the current level of about 10 trillion yen on average. This Balance is calculated assuming that arbitrage transactions take place in full among financial institutions.


b) Change in the amount of each ETF to be purchased The Bank will revise the purchase amount of each ETF and increase that of ETFs which track the Tokyo Stock Price Index (TOPIX)


3. Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating, and labor market conditions have continued to tighten steadily. Meanwhile, prices have continued to show relatively weak developments compared to the economic and employment conditions. As shown in the July 2018 Outlook for Economic Activity and Prices (Outlook Report) released today, this is attributable to a combination of factors such as firms' cautious wage- and price-setting stance and households' continuous cautiousness toward price rises, and it is likely to take more time than expected to achieve the price stability target of 2 percent. However, the year-on-year rate of change in the consumer price index (CPI) is likely to increase gradually toward 2 percent with the output gap remaining positive.


4. Based on the above recognition, the Bank judged it appropriate to introduce forward guidance for policy rates and to enhance the sustainability of "QQE with Yield Curve Control" by conducting market operations as well as asset purchases in a more flexible manner, thereby maintaining the output gap as long as possible within positive territory. The Bank recognizes that this will lead to achieving the price stability target of 2 percent at the earliest possible time, while securing stability in economic and financial conditions.


5. The Bank will continue with "QQE with Yield Curve Control," aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will examine the risks considered most relevant to the conduct of monetary policy and make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target.