The Policy Board of the Bank of Japan decided to maintain a negative interest rate of 0.1% for the Policy-Rate Balances in current accounts held by 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.

In addition, the Bank will 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 limits of about 12 trillion yen and about 180 billion yen, respectively. The Bank will continue purchases of Commercial paper and corporate bonds with an upper limit on the amount outstanding of about 20 trillion yen in total until the end of March 2022.

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.

Despite the pick up in activity levels, Japan's economy remains in a severe situation due to the impacts of the COVID-19 pandemic. Exports and industrial production have increased with recovery among trading partners but some production has been affected by supply-side constraints. Business fixed investment has picked up with improvement in corporate profits and business sentiment. The employment and income situation remains weak due to COVID-19. Private consumption has started to increase but downward pressure remains on services consumption. Housing investment has increased in the Japan. Going forward, further recovery is expected but the face-to-face services sector is expected to be lower in the near term. Progress with vaccinations, rising external demand, accommodative financial conditions, and government’s economic measure are expected to be supportive.

The year-on-year rate in the consumer price index (CPI, all items less fresh food)  was 0.4% in August 2021. The CPI is expected to increase and be in positive territory over the short-term due to a rise in energy prices, and a rebound in hotel charges from last year's decline brought about by the "Go To Travel" campaign. As economic activity continues to improve, the annual change in the CPI is expected to increase gradually as a trend. Excluding the impacts of temporary factors, the Bank of Japan projects annual CPI inflation to remain steady and show a moderate increase in positive territory. The Bank exects median CPI (all items less fresh food) inflation to be 0.0% in 2021, +0.9% in 2022 and +1.0% in 2023. 

The Bank of Japan noted that it will continue to closely monitor the impacts of the COVID-19 and will take additional easing measures if needed. The Bank expects short- and long-term policy interest rates to remain at their present or lower levels. 

Source: Bank of Japan, Statement on Monetary Policy (Oct 28, 2021), Outlook for Economic Activity and Prices (October 2021)