The Bank of Japan maintained its aggressive monetary easing, as widely expected, as inflation remains well below the 2 percent target.
Governor Haruhiko Kuroda and his board members decided by an 8-1 majority vote to hold its target of raising the amount of outstanding JGB holdings at an annual pace of about JPY 80 trillion, the bank said in a statement on Thursday.
The bank will purchase government bonds so that the yield of 10-year JGBs will remain at around zero percent.
The board also decided to maintain the -0.1 percent interest rate on current accounts that financial institutions maintain at the bank.
The sole dissenting member Goushi Kataoka said it was desirable to achieve the price stability target in fiscal 2018 and it was appropriate for the BoJ to purchase JGBs so that yields on JGBs with maturities of 10 years and longer would be broadly lowered.
The BoJ is set to leave the policy settings unchanged at least until end-2019, Marcel Thieliant, Capital Economics’ economist said.
The economist noted that one concern among analysts is that rising yields will force the bank to buy more bonds than it is willing to buy and another concern is that low policy rates depress bank profits, weaken their capital ratios and reduce lending.
Thieliant said these concerns are invalid and the weak price pressures will continue to dominate the outlook for monetary policy.
The BoJ inflation is likely to continue on an uptrend and increase toward 2 percent on the back of an improvement in the output gap and rise in inflation expectations.
The bank added that private consumption has been increasing moderately and business fixed investment continued an increasing trend with corporate profits and business sentiment improving.
Early this week, the government had upgraded its growth outlook citing strong domestic demand. The Japan economy was forecast to grow 1.9 percent in the fiscal 2017 and 1.8 percent in the fiscal 2018.
Inflation was estimated to rise to 1.1 percent in the fiscal 2018 from 0.7 percent in FY 2017. Both rates were well below the central bank’s target of 2 percent.
The material has been provided by InstaForex Company – www.instaforex.com
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