Bank of Japan cuts economic judgment due to slowing consumption, wary of situation in Ukraine

At the monetary policy meeting held on 17th-18th, the Bank of Japan decided in favor of continuing the current quantitative and qualitative monetary easing policy with long- and short-term interest rate control (yield curve control). .. The slowdown in personal consumption lowered the judgment of the current state of the economy, and the soaring crude oil price changed the price outlook to a stronger one, but the economic recovery scenario was maintained. “The impact of the situation in Ukraine on Japan’s economy and prices is extremely uncertain,” he said, and caution is required along with the trend of new coronavirus infections.

Judgment of the current state of the economy is “There are some weakening movements due to the effects of infectious diseases, etc., but it is picking up as a keynote”, and from the expression “The recovery is clear” in the previous January outlook report. Retreated.

Regarding overseas economies, he maintained the phrase, “It is recovering as a whole, with variations in each country and region.” It is rising, and it is necessary to pay attention to future trends.

Exports and production have not changed the wording from the previous time, saying that “although the effects of supply constraints remain, they continue to increase as a keynote.” On the other hand, personal consumption has dropped its tone from the previous “recovery has been clarified”, saying that “the recovery has stopped due to the increasing downward pressure centered on service consumption due to the re-expansion of infectious diseases.”

For the time being, the year-on-year rate of change in the consumer price index (excluding fresh food and core CPI) will “clearly expand the range of increase” due to the sharp rise in energy prices, the progress of price pass-through, and the disappearance of the effects of mobile price cuts. It became a strong expression from “I will expand the width.” “The underlying upward pressure on prices will increase,” he said, due to the improvement of the output gap on a macro scale and the increase in the expected inflation rate over the medium to long term.

Regarding the outlook for the domestic economy, the Bank of Japan pointed out that “under the influence of downward pressure on service consumption due to infectious diseases and supply constraints, we will recover while being affected by rising resource prices,” and said the economic recovery scenario. Maintained.

However, the sentence “The economy will continue to grow above the potential growth rate as the positive circulation mechanism from income to expenditure strengthens in the economy as a whole, including the household sector,” that was stated in the January Outlook Report, is omitted. rice field. In April 2021, the Bank of Japan revived the wording of “a positive circulation mechanism.”

Regarding the financial environment, as in the previous survey, “although some of the corporate cash flow remains strict, it has eased as a whole.”

The target of the policy interest rate was decided to remain unchanged with 8 in favor and 1 against. As for the short-term interest rate, the interest rate of minus 0.1% will continue to be applied to the policy interest rate balance of the BOJ’s current deposits. As for the long-term interest rate, we will purchase the required amount of long-term government bonds without setting an upper limit so that the interest rate of 10-year government bonds will remain at around 0%. Goshi Kataoka objected that it would be desirable to strengthen monetary easing by lowering long- and short-term interest rates.

The scale of asset purchases other than long-term government bonds has remained unchanged. For the time being, exchange-traded funds (ETFs) will be purchased at 12 trillion yen a year, and real estate investment trusts (REITs) will be purchased as needed up to a pace of increase in balance of 180 billion yen a year.

Commercial paper (CP) and corporate bonds will be purchased up to a total balance of approximately 20 trillion yen until the end of March. From April onward, purchases will be made at the same pace as before the spread of infectious diseases, and the purchase balance will be gradually returned to the level before the spread of infectious diseases.

The Bank of Japan aims to achieve the price stability target of 2%, and will continue quantitative and qualitative monetary easing with long- and short-term interest rate manipulation until the time necessary to maintain it stably. Regarding the monetary base, we will continue to expand the policy until the actual year-on-year rate of increase in consumer prices (excluding fresh food) stably exceeds 2%.

For the time being, he will pay close attention to the effects of infectious diseases and reiterate that he will take additional mitigation without hesitation if necessary. The policy interest rate is expected to remain at or below the current level of long- and short-term interest rates.