- Jul. 9, 2020
- Jun. 30, 2020
- Jun. 30, 2020
October 31, 2019
Bank of Japan
As for the policy rates, the Bank expects short- and long-term interest rates to remain at their present or lower levels as long as it is necessary to pay close attention to the possibility that the momentum toward achieving the price stability target will be lost.
The Bank decided, by a 7-2 majority vote, to set the following guideline for market operations for the intermeeting period. [Note 2]
With regard to asset purchases other than JGB purchases, the Bank decided, by a unanimous vote, to set the following guidelines.
The Bank of Japan judged, at the previous Monetary Policy Meeting (MPM), that it was becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target would be lost, given that, recently, slowdowns in overseas economies had continued to be observed and their downside risks seemed to be increasing. Taking this situation into account, at this MPM, the Bank examined such factors as the output gap and medium- to long-term inflation expectations, which are the main elements of the assessment of the momentum toward achieving the price stability target. On this basis, the Bank judged that, although there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost, it was necessary to continue to pay close attention to the possibility.
The output gap is likely to narrow temporarily within positive territory. However, throughout the projection period, it is expected to remain at around the current level on average with the economy continuing on an expanding trend.
As for overseas economies, the timing of a pick-up in the growth pace is likely to be delayed for longer than expected, mainly due to the intensified and prolonged U.S.-China trade friction as well as slowdowns continuing in emerging and commodity-exporting economies, such as China. Under these circumstances, Japan's economy is expected to grow temporarily at a somewhat slower pace than its potential, mainly reflecting the effects of continuing relatively weak developments in exports and of the consumption tax hike, and the output gap is likely to narrow temporarily within positive territory.
However, throughout the projection period -- that is, through fiscal 2021 -- business fixed investment -- mainly investment related to urban redevelopment projects, labor-saving investment, and research and development (R&D) investment -- is likely to continue increasing moderately, although the pace of increase is expected to decelerate temporarily, mainly for manufacturing, due to the effects of the slowdown in overseas economies. Private consumption is expected to follow a moderate increasing trend, mainly because the employment and income situation is likely to continue improving, with the effects of the consumption tax hike remaining small. Thus, domestic demand is likely to follow an uptrend, as the impact of the slowdown in overseas economies is expected to be limited. With regard to overseas economies, the growth rates are expected to rise, partly backed by the materialization of the effects of macroeconomic policies in each country as well as the progress in global adjustments in IT-related goods. In this situation, Japan's economy is likely to continue on an expanding trend throughout the projection period. On average, it is expected that the economy will continue growing at about the same pace as its potential, and the positive output gap will remain at around the current level.
Medium- to long-term inflation expectations have been more or less unchanged on the whole, although they have shown somewhat different developments depending on indicators. As for the outlook, such expectations are likely to follow an increasing trend, with the output gap remaining positive.
Medium- to long-term inflation expectations have been more or less unchanged on the whole, although each indicator has shown somewhat different developments, in that some have indicated relatively weak developments while others have shown an increase. In addition, there have been signs that households' tolerance of price rises will increase and firms' stance will shift toward further raising prices, although both have remained cautious.
Regarding the outlook, it is expected that households' tolerance of price rises will increase steadily and firms' stance gradually will shift toward further raising prices as the employment and income situation is likely to continue improving with the economy maintaining an expanding trend and the output gap remaining positive. If households' and firms' stances toward prices become more active, in terms of the adaptive component, medium- to long-term inflation expectations are likely to be pushed up through a rise in the observed inflation rate. In addition, in terms of the forward-looking component, the Bank will pursue monetary easing through its strong commitment to achieving the price stability target, which will be effective in pushing up medium- to long-term inflation expectations.
Under these circumstances, medium- to long-term inflation expectations are likely to follow an increasing trend and gradually converge to 2 percent.
Looking at developments in crude oil prices and global financial markets, which affect overall prices including import prices, crude oil prices have been more or less flat -- albeit with fluctuations -- since around this summer, although they have been lower compared to the level seen around spring. With regard to global financial markets, investors' risk aversion had continued to be observed, mainly against the background of the U.S.-China trade friction and concern over the slowdown in the global economy, but the markets recently have been calm compared to a while ago.
With regard to price developments, uncertainties over both the output gap and medium- to long-term inflation expectations remain significant. In particular, close attention should be paid to the possibility that, in a situation where downside risks concerning overseas economies seem to be increasing, if they materialize, such as in the form of a further delay in the timing of a pick-up or a further deceleration in the growth pace of overseas economies, prices will be affected to some extent, mainly through the output gap. In addition, it is necessary to closely monitor future developments in crude oil prices and global financial markets because they also could affect prices.