- Capital Economics
The Bank of Japan kept monetary policy unchanged at its final meeting of the year, opting to assess the effects of the expanded stimulus programme, despite a sharp decline in global oil prices, which jeopardize the central bank's attempts to reach 2% inflation. While economists expect that further monetary easing will be needed next year, the BoJ offered a more optimistic view on the nation's economy.
As widely expected, the BoJ decided to keep its pledge to expand base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen via purchases of government bonds and risky assets. The Monetary Policy Statement showed that the Japanese economy has continued to recover moderately as a trend from the dampening effect of a sales tax hike in April. Prime Minister Shinzo Abe's decision to delay the next planned tax hike by 18 months to April 2017 is likely to provide more than enough time for demand to rebound. Regarding the economic outlook for Japan, the BoJ said the trend is likely to persist, but inflation will stay around 1% for some time. Inflation might pick up in the near term due to the lower value of the Japanese Yen, which has lost around 8% versus the US Dollar since the BoJ's October 31 meeting. The central bank also raised its views of exports, industrial production and housing investment in a detailed assessment.
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