Bank Of Japan Maintains Monetary Stimulus; Cuts FY 2021 GDP Outlook

The Bank of Japan maintained its monetary stimulus and downgraded its growth outlook for the current fiscal year as supply-side constraints dampened production and exports amid weak consumption.

The board, governed by Haruhiko Kuroda, on Thursday, voted 8-1, to hold the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

According to the latest Outlook for Economic Activity and Prices, risks to economic activity are skewed to the downside for the time being, mainly due to the impact of COVID-19, but are generally balanced for the middle of the projection period onward.

The growth outlook for the fiscal 2021 was downgraded to 3.4 percent from 3.8 percent, while the projection for the next fiscal was lifted to 2.9 percent from 2.7 percent.

For the fiscal 2023, the growth outlook was maintained at 1.3 percent.

On the price front, the bank said consumer prices are set to remain unchanged in the current fiscal instead of the 0.6 percent increase estimated previously.

The projected rate of increase in the CPI for fiscal 2021 is lower, mainly due to the effects of the rebasing of the index.

The bank maintained its inflation forecast the fiscal 2022 at 0.9 percent and that for the fiscal 2023 at 1 percent.

With the Bank highlighting that risks to both near-term economic activity as well as inflation are tilted to the downside, the Bank is signaling that policy will have to remain loose for longer, Marcel Thieliant, an economist at Capital Economics, said.

Further, the economist said rents are stagnant and regular wages are barely rising so the chances of inflation hitting the Bank’s 2 percent inflation target remain slim.

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