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December 17, 2021BANK OF JAPAN MONETARY POLICY 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.
While financial conditions in Japan have improved, some small and medium sized firms, particularly those in the face-to-face services sectors continue to see some weakness. Given these developments, the Bank of Japan decided to extend the Special Program to Support Financing in Response to the Novel Coronavirus (COVID-19) in part by six months until the end of September 2022, with a view to continuing to support financing, mainly of small and medium-sized firms. The Bank will complete its additional purchases of Corporate Paper (CP) and corporate bonds at the end of March 2022 as scheduled. From April 2022 onward, it will purchase about the same amount of CP and corporate bonds as prior to the pandemic.
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) was 0.1% in October 2021. Japan's CPI has been rebased to 2020, resulting a restatement of previous inflation history.
The CPI is expected to increase and be in positive territory over the short-term due to a rise in energy prices. As economic activity continues to improve, the annual change in the CPI is expected to increase gradually as a trend mainly due to improvements in the output gap and a rise in medium- to long-term inflation expectations.
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 (Dec 17, 2021), Extension of Financing Support for SMEs
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