Bank Of Japan Leaves Policy, Economic Outlook Unchanged

As expected by all 43 economists who estimate such things, the Bank of Japan left their policy mix unchanged and in a desperate bid to appear modestly positive about how things are going, maintained that "Japan's economy has been turning toward a moderate expansion," adding that that consumer spending "increased its resilience." Hardly a rousing evaluation of the state of the economy after who-knows-how-many-years of so-called 'stimulus'.

Following The Fed's 4th rate hike in 11 years, The Bank of Japan sat on its hands once again...

  • The BOJ maintained its short-term policy rate on some bank reserves at -0.1 percent and...
  • left its target for 10-year government bond yields at around 0 percent.
  • It kept the pace of its asset purchases unchanged at about 80 trillion yen ($700 billion) annually.

As Bloomberg's Enda Curran notes, looking through the statement, there's not much new in terms of signalling or a change to the narrative. This may suggest the BOJ is reasonably comfortable with where the economy is headed and policy makers are happy to tread water.

USDJPY chopped around a litle, but NKY futures were entirely unimpressed as Kuroda delivered the anticipated 'nothing-burger'.


The vote to do nothing was 7 to 2 with the two dissenters, Mr. Sato and Mr. Kiuchi, having one more policy meeting -- July 19-20 -- before their terms are up. Assuming they are sworn in by then, their replacements could change the 7-2 vote tallies that we've been seeing.

Kuroda's news conference today could be interesting. Will he stick to being evasive about the topic of an exit, or will he drop any hints that the BOJ is starting to think about it?

As we noted earlier, the central bank is "technically tapering," said Hiroshi Shiraishi, senior economist at BNP Paribas in Tokyo. This can be clearly seen in the following chart from Bank of America.

Aside from the a declining supply of bonds held by the private sector, one tactical reason why the BOJ may be buying fewer bonds is its "yield curve control" policy, which aims to keep the yield on 10-year government bonds at zero. This implies it can buy fewer bonds when the yield is close to that target. Wednesday, the yield was at 0.06%.

Previously, Kuroda has acknowledged this slowdown, but has been quick to declare that what effectively amounts to a 35% taper doesn't signal a retreat from easy-money policies. "At this stage, we are not exiting," Kuroda said at The Wall Street Journal's CEO Council meeting in Tokyo on May 16.