The Strategist

Central Bank of Japan maintains monetary policy, notes possibility of easing

09/19/2019 - 11:02

Following a two-day meeting, the Bank of Japan left the monetary policy unchanged, but signaled the possibility of expanding incentives.

Toshihiro Oimatsu
Toshihiro Oimatsu
As expected, the interest rate on deposits of commercial banks with the Central Bank was maintained at minus 0.1%. The target yield of 10-year government bonds in Japan remained at about 0%. 7 out of 9 members of the Board of Governors voted for this decision.

The central bank said it needs to pay "closer attention" to the likelihood that the economy may lose momentum to meet the inflation target of 2%. "Given this situation, the Bank of Japan will review economic and price changes at its next meeting," the regulator said.

The call for review is likely to raise expectations that the Bank of Japan will take additional stimulus measures at a meeting on October 30-31, when it will conduct a quarterly review of its long-term growth and inflation forecasts.

In July, the central bank added that it would not hesitate to take additional steps to soften the policy if “there is a greater likelihood that the momentum to achieve the price goal will be lost.”

The Bank of Japan reiterated this promise in a statement on Thursday and added that it intends to maintain interest rates at current ultra-low levels until at least the spring of 2020.

The statement was made just a few hours after the US Federal Reserve cut interest rates to support the economy and hedge risks such as weak global growth and trade tensions.

The world's third largest economy is facing increasing downward pressure as the trade war between the US and China is intensifying and global demand weakening. Japan's exports has been falling for the ninth consecutive month in August.

Meanwhile, the planned increase in sales tax from 8% to 10% in October is a source of risk for consumer spending. A tax increase is expected to reduce the Japanese economy in the fourth quarter.

Inflation in Japan remains well below its 2% target, despite more than six years of massive stimulus.