Bank of Japan has released a monetary policy for the bank’s outlook for Japan’s economic activity and prices early Tuesday on its official website. The bank believes that the country’s economy has still room to grow exponentially, with the bank indicating outlook through fiscal 2018.
The 2% inflation rate increase initially posted by the central bank remained unchanged while the bank believes that Japan is likely to experience around 1.4% economic growth for the current fiscal year, ending at March 31.
BOJ Economic Growth Outlook
Japan’s central bank adjusted its economic growth forecast from an initial 1% increase to 1.4% for the current fiscal year. Meanwhile, the growth for the coming fiscal year was also changed from 1.3% to a more optimistic 1.5% climb for the economy.
On the bank’s short-term policy interest rate, BOJ plans to apply -0.1% interest rate, which in accordance with the Policy-Rate Balances currently held by several financial institutions at BOJ. Meanwhile, BOJ will repurchase Japanese government bonds in order for the 10-year JGB yields to remain at zero percent at rate of ¥80 trillion ($705 billion) a year as a long-term interest rate action.
The consumer price index (CPI) is expected to grow from 0% to 2%, as the bank is expecting total supply and demand of energy prices to improve, while the medium to long-term inflation increases are also expected to climb.
Although the growth estimates for the fiscal year were changed to higher forecasts, the Bank of Japan did not change its initial inflation forecast for the next years even with other factors like rising prices from a weak Japanese yen.
“Comparing the current position with the previous ones, the projected growth rates are somewhat higher, mainly reflecting improvement in overseas economies and the yen’s depreciation. With regard to the risk balance, risks to both economic activity and prices are skewed to the downside. The momentum for achieving 2% inflation target is maintained but lacks strength,” BOJ said.
The 2% inflation target is set to be achieved by March 2019, which was the same from the initial forecast released in November. The policy agreement was voted by a majority of 7-2 Policy Board members led by BOJ Governor Haruhiko Kuroda, after a two-day board meeting.
Although Japan is optimistic towards a good economic growth, the country is still set to face more challenges as the country’s relationship with US President Donald Trump grows more uncertain with the president signing policies that could affect trade relations between the two.
Policymakers in Japan worry that a stronger yen against the greenback could affect the country’s exports.
Following the release of the monetary policy, the country’s currency briefly regained strength against the US dollar, reaching at ¥113.21, from an open of ¥113.76.
Trade pressure is rising in Japan as Abe is set to meet with Toyota Motor Corp’s CEO Akio Toyoda this week. The prime minister received a phone call from Trump on Saturday repeating Abe’s promise to create jobs in the US, and asking for the Japanese auto industry to contribute. Japan has a strong-performing auto industry comparing to the America’s performance in the sector.
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