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January 21, 2021BANK OF JAPAN MONETARY POLICY In the first Monetary Policy Meeting of 2021, the Policy Board of the Bank of Japan decided to maintain the negative interest rate of -0.1 per cent on balances of financial institutions at the Bank. The Bank of Japan will also purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit in order to keep the 10-year JGB yields at around zero per cent. However, yields may move up or down depending on economic activity and prices.
The Policy Board decided to extend the deadline for loan disbursements under the Fund-Provisioning Measure to Stimulate Bank Lending and the Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth by one year.
In addition, the Bank will actively purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces with upper limit of about 12 trillion yen and about 180 trillion yen, respectively. Commercial paper (2.0 trillion yen) and corporate bond (3.0 trillion yen) holdings by the Bank will be maintained. The Bank will make additional purchases with the upper limit of the amounts outstanding of 15 trillion yen for each asset until the end of September 2021.
The Bank will continue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control," aiming to achieve the price stability target of 2 per cent, as long as it is necessary for maintaining that target in a stable manner. The Bank also noted that it will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 per cent and stays above the target in a stable manner.
In response to COVID-19, the Bank will continue to support financing of firms and maintain financial market stability through:
- the Special Program to Support Corporate Financing,
- provision of yen and foreign currency funds without setting upper limits, and
- active purchases of ETFs and J-REITs.
Economic conditions in Japan continued to improve gradually throughout the end of 2020. However, the resurgence of COVID-19 in many countries has weighted on the recovery prospects both domestically and globally. While private consumption has been on an upward trend, weak employment and income situation continues to put a downward pressure on consumption of services, such as eating and drinking as well as accommodations. Overall, the decline in business fixed investment has ended although uneven conditions among industries continues.
The year-over-year rate of the change in the consumer price index (CPI, all items less fresh food) has been negative. The negative inflation reflects mainly the impacts of COVID-19, the past decline in crude oil prices and the impacts of the "Go To Travel" campaign.
The upward trend in Japan’s economic conditions is expected to continue supported by a recovery in external demand, accommodative financial conditions, and the government’s economic measures. The pace of growth is expected to be moderate in the short-term and start improving further as global economies return to a steady growth path.
Compared with the previous projections in the October Outlook Report, the projected growth rate is higher for fiscal 2021 reflecting the support coming from the government’s economic measures. Inflation projections are more or less unchanged from the October Outlook Report. The outlook continues to be very uncertain due to the risks of COVID-19 on domestic and global economic conditions.
The Bank noted that it will closely monitor the impacts of COVID-19 on the Japanese economy and is prepared to take additional easing measures as needed. The Bank expects short- and long-term policy interest rates to remain at their present or lower levels for the time being.
Source: Bank of Japan, Statement on Monetary Policy, Outlook for Economic Activity and Prices (January 2021)
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