BOJ caps momentous year by maintaining status quo

BOJ governor Mr Kuroda taking a question during a news conference in Tokyo yesterday. The Japanese central bank's final meeting of the year came on the heels of stronger-than-expected November export data and the first rise for more than a year in it
BOJ governor Mr Kuroda taking a question during a news conference in Tokyo yesterday. The Japanese central bank's final meeting of the year came on the heels of stronger-than-expected November export data and the first rise for more than a year in its closely watched survey of business confidence.PHOTO: BLOOMBERG

Japan central bank leaves policy unchanged as exports pick up on the back of slide in yen

TOKYO • The Bank of Japan (BOJ) yesterday improved its view of the world's No. 3 economy, providing some relief to the government's stuttering growth drive, as exports pick up on the back of a steep slide in the yen.

Policymakers held fire on further stimulus and said they would keep a plan to hold the yield on government 10-year bonds at around zero, part of a bid to stimulate growth.

The bank's final meeting of the year came on the heels of stronger- than-expected November export data and the first rise for more than a year in its closely watched survey of business confidence.

However, inflation expectations remain weak and risks to the outlook abound, ranging from developments in the Chinese and US economies to Brexit and geopolitical uncertainties.

Most analysts had already adopted the view that the BOJ would stand pat in coming months with its targets for short- and long-term interest rates, even before Mr Donald Trump's victory in the US presidential election sent the yen tumbling, easing any pressure for additional action to stoke inflation.

After the shock of negative rates in January, a comprehensive policy review mid-year and new direction since September, economists polled by Bloomberg do not expect any more easing before governor Haruhiko Kuroda leaves in 2018. 

"Mr Kuroda delivered on cue with no surprises," said Mr Stephen Innes, a Singapore-based senior trader at foreign exchange firm Oanda. While the upgrade of the economic assessment may further dampen domestic easing expectations, "Trumpflation" is likely to see the US dollar strengthen further against the yen, said Mr Innes.

  • FISCAL SPENDING PLANS

  • 1.5%

    Rise in real gross domestic product in the next fiscal year from April 1, versus a previous estimate of 1.2 per cent.

  • 2.5%

    Rise in nominal growth, from a previous estimate of 2.2 per cent.

  • 1.1%

    Advance in overall consumer prices, from a previous estimate of 1.4 per cent.

Separate to the BOJ, which will not provide numerical forecasts until its next meeting, the Cabinet Office released upgrades for its estimates for the economy, and Finance Minister Taro Aso confirmed fiscal spending plans: Real GDP will rise 1.5 per cent in the next fiscal year starting on April 1, versus a previous estimate of 1.2 per cent. Nominal growth will rise to 2.5 per cent, from a previous estimate of 2.2 per cent. Overall consumer prices will advance 1.1 per cent, from a previous estimate of 1.4 per cent.

The initial Budget for next year will be 97.5 trillion yen (S$1.2 trillion), up 0.8 per cent on the same figure this year. Like in 2016, Tokyo is expected to follow up with supplementary budgets in next year.

The focus for investors now moves to the BOJ's efforts to contain a surge in yields amid a global bond sell-off. The central bank's shift in policy framework in September to yield-curve control was meant to make its stimulus programme more sustainable as it neared the practical limits of asset purchases.

The yen fell in the wake of the BOJ's policy statement, after hitting a 10-month low last week.

AGENCE FRANCE-PRESSE, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 21, 2016, with the headline 'BOJ caps momentous year by maintaining status quo'. Print Edition | Subscribe