June 16, 2016

Despite the recent rally of the Japanese yen and a still weak economy, uncertainty ahead of the United Kingdom’s 23 June vote on Brexit prompted the Bank of Japan (BoJ) to make no changes to its stimulus program at its 15–16 June monetary policy meeting. The Bank voted 8–1 to continue implementing money market operations so that the monetary base will increase at an annual pace of JPY 80 trillion (approximately USD 768 billion). The Bank also voted 8–1 to purchase Japanese government bonds so that their outstanding amount will increase at an annual pace of about JPY 80 trillion, with an average remaining maturity of 7–12 years. Finally, the BoJ decided to leave the interest rate for the Policy-Rate Balances in current accounts held by financial institutions at minus 0.1%.



The decisions under the Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate program are aimed at meeting the, “price stability target of 2% as long as it is necessary for maintaining that target in a stable manner.”



In its June assessment of the economy, the BoJ restated that Japan’s economy has continued its moderate recovery trend, although economic activity, mainly exports and industrial production, has been negatively affected by the slowdown in emerging-market economies and spillovers from April’s Kumamoto earthquakes. The main pillars of the economic recovery continue to be resilient private consumption due to an improved job market and high levels of corporate profits, which translate into stronger investment.



Regarding price developments, the Bank stressed that, “although inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, they have recently weakened.” In addition, the Bank stated that inflation is likely to be slightly negative or close to 0% for the time being due to the effects of the decline in energy prices. Against this backdrop, the 2.0% stability target is expected to be achieved during fiscal year 2017. The next monetary policy meeting is scheduled for 29 July.

The analysts FocusEconomics polled this month expect the BoJ policy rate to end this year at minus 0.23% and see it at minus 0.32% in 2017.FocusEconomics Consensus Forecast panelists expect the yen to trade at 113.6 per USD at the end of 2016. For 2017, the panel projects the yen to weaken to 115.1 per USD..