The Bank of Japan (BOJ) voted to keep monetary policy steady on Tuesday in a decision that was widely anticipated by the financial markets.
In a 7-2 decision, the Japanese central bank voted to keep interest rates at -0.1%, where they’ve stood since the start of 2016. The outcome of the meeting was in line with the consensus forecast, which called for no change to the benchmark interest rate.
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Officials also voted to maintain the purchase of Japanese government bonds so that the 10-year JGB yield remain at zero percent. With regards to the size of the government bonds to be purchased, the BOJ will conduct purchases at the current annual rate of around ¥80 trillion.
Policymakers also boosted their outlook fiscal year 2016 growth to 1.4% from a prior estimate of 1%. Fiscal 2017 growth was also upwardly revised to 1.5% from 1.3% in October. The pace of expansion in fiscal 2018 is also expected to be higher at 1.1%, versus 0.9% previously.
The same forecast showed little change in the long-term inflation outlook.
Since uprooting its policy program last September, the BOJ has remained on the side-lines, opting instead to monitor the economy’s progress. The International Monetary Fund (IMF) recently predicted the Japanese economy will grow 0.8% this year and 0.5% in 2018.
A deluge of economic data on Tuesday ranging from unemployment to industrial output confirmed that the Japanese economy was showing signs of progress at the end of last year. Japan’s unemployment rate held steady at 3.1%, as jobs availability increased.
Meanwhile, a separate measure of household consumption registered the smallest drop in ten months, signalling that a solid jobs recovery and highly accommodative policies would eventually give rise to stronger consumption.
Finally, the Japanese government said industrial production, a closely-watched barometer of factory activity, rose 0.5% in December. That was slightly above the median forecast calling for a 0.4% increase.
Japanese policymakers are said to be treading cautiously after the election of Donald Trump to U.S. President. Trump has already talked down the U.S. dollar, making the yen stronger by comparison, and questioned Japan’s supposed non-tariff barriers on American cars. According to The Wall Street Journal, the new Republican administration is “evoking Japanese memories of fierce trade friction with Washington in the 1980s and 1990s.”
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