Bank Of Japan Keeps Policy Unchanged; Sees Sharp Downturn In FY 2021


The Bank of Japan maintained its massive monetary policy stimulus on Wednesday as the economy is expected to contract more sharply in the current financial year due to the challenges posed by the novel coronavirus.

The Policy Board of the BoJ voted 8-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The bank will actively buy exchange-traded funds and Japan real estate investment trusts so that their outstanding amounts will increase at annual paces with the upper limit of about JPY 12 trillion and JPY 180 billion, respectively.

As for CP and corporate bonds, the bank will maintain their outstanding amounts at JPY 2 trillion and JPY 3 trillion, respectively.

The bank is unlikely to announce major new measures over the coming months, Marcel Thieliant, an economist at Capital Economics, said.

The economy is forecast to improve gradually from the second half of the year with economic activity resuming, but the pace is expected to be only moderate while the impact of the novel coronavirus remains worldwide, BoJ said.

The bank observed uncertainty posed by the covid-19 is extremely high. It is highly unclear how the pandemic will evolve and how long it will take to subside, the banks said.

According to the quarterly outlook report, the economy will contract 4.7 percent in this fiscal year ending March 2021. In April, the bank had forecast a fall somewhere between 3 percent and 5 percent.

Thereafter, the economy is projected to expand 3.3 percent in next fiscal year and 1.5 percent in the fiscal 2022. Earlier, the bank had forecast 2.8 percent to 3.9 percent growth in 2021 and 0.8 to 1.6 percent in FY 2022.

Consumer prices are expected to fall 0.5 percent in the fiscal 2020. In April, prices were expected to drop between 0.3 and 0.7 percent.

The bank projected consumer prices to rise 0.3 percent in the next fiscal and 0.7 percent in the fiscal 2022.

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