Statement on Monetary Policy

December 19, 2019
Bank of Japan

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At the Monetary Policy Meeting (MPM) held today, the Policy Board of the Bank of Japan decided upon the following.
1. (1) Yield curve control
  
  The Bank decided, by a 7-2 majority vote, to set the following guideline for market operations for the intermeeting period.^{[Note 1]}
  
  The short-term policy interest rate:
  
  The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank.
  
  The long-term interest rate:
  
  The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain at around zero percent. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.¹ With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.
2. (2) Guidelines for asset purchases
  With regard to asset purchases other than JGB purchases, the Bank decided, by a unanimous vote, to set the following guidelines.
  1. a) 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 of about 6 trillion yen and about 90 billion yen, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions.
  2. b) As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.
Japan's economy has been on a moderate expanding trend, with a virtuous cycle from income to spending operating, although exports, production, and business sentiment have shown some weakness, mainly affected by the slowdown in overseas economies and natural disasters. Overseas economies have been growing moderately on the whole, although slowdowns have continued to be observed. In this situation, exports have continued to show some weakness, and industrial production has declined recently, due partly to the effects of natural disasters. On the other hand, with corporate profits staying at high levels on the whole, business fixed investment has continued on an increasing trend. Private consumption has been increasing moderately, albeit with fluctuations due to such effects as of the consumption tax hike, against the background of steady improvement in the employment and income situation. Housing investment has been more or less flat, and public investment has increased moderately. Meanwhile, labor market conditions have remained tight. Financial conditions are highly accommodative. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is at around 0.5 percent. Inflation expectations have been more or less unchanged.
With regard to the outlook, Japan's economy is likely to continue on a moderate expanding trend, as the impact of the slowdown in overseas economies on domestic demand is expected to be limited, although the economy is likely to continue to be affected by the slowdown for the time being. Domestic demand is expected to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, mainly against the background of highly accommodative financial conditions and active government spending, despite being affected by such factors as the consumption tax hike. Although exports are projected to continue showing some weakness for the time being, they are expected to be on a moderate increasing trend on the back of overseas economies growing moderately on the whole. The year-on-year rate of change in the CPI is likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium- to long-term inflation expectations rising, despite such effects as of the decline in crude oil prices for the time being. ^{[Note 2]}
Risks to the outlook include the following: the consequences of protectionist moves and their effects; developments in emerging and commodity-exporting economies such as China; developments in global adjustments in IT-related goods; developments in the United Kingdom's exit from the European Union (EU) and their effects; geopolitical risks; and developments in global financial markets under these circumstances. Downside risks concerning overseas economies seem to remain significant, and it also is necessary to pay close attention to their impact on firms' and households' sentiment in Japan.
The Bank will continue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control," aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. 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 percent and stays above the target in a stable manner. 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. It will examine the risks considered most relevant to the conduct of monetary policy and make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target. In particular, in a situation where downside risks to economic activity and prices, mainly regarding developments in overseas economies, are significant, the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost. ^{[Note 3]}

[Note 1] Voting for the action: Mr. H. Kuroda, Mr. M. Amamiya, Mr. M. Wakatabe, Mr. Y. Funo, Mr. M. Sakurai, Ms. T. Masai, and Mr. H. Suzuki. Voting against the action: Mr. Y. Harada and Mr. G. Kataoka. Mr. Y. Harada dissented, considering that allowing the long-term yields to move upward and downward to some extent was too ambiguous as the guideline for market operations decided by the Policy Board. Mr. G. Kataoka dissented, considering that it was desirable to strengthen monetary easing by lowering the short-term policy interest rate. Return to text
[Note 2] Mr. G. Kataoka dissented, considering that the possibility of the year-on-year rate of change in the CPI increasing toward 2 percent going forward was low at this point. Return to text
[Note 3] In order to achieve the price stability target of 2 percent at the earliest possible time, Mr. G. Kataoka dissented, considering that further coordination of fiscal and monetary policy was necessary, and that it was appropriate for the Bank to revise the forward guidance for the policy rates to make it a powerful one that specifically relates to the price stability target. Return to text

In case of a rapid increase in the yields, the Bank will purchase JGBs promptly and appropriately. Return to text

(Reference)

Meeting hours:: Wednesday, December 18: 14:00-16:15
Thursday, December 19: 9:00-11:38
Policy Board members present:: Haruhiko Kuroda, Chairman (Governor)
Masayoshi Amamiya (Deputy Governor)
Masazumi Wakatabe (Deputy Governor)
Yutaka Harada
Yukitoshi Funo
Makoto Sakurai
Takako Masai
Hitoshi Suzuki
Goushi Kataoka

(Others present)

December 18: From the Ministry of Finance:
Masato Kanda, Deputy Vice-Minister for Policy Planning and Coordination (14:00-16:15); From the Cabinet Office:
Hiroshi Tawa, Vice-Minister for Policy Coordination (14:00-16:15)
December 19: From the Ministry of Finance:
Kiyohiko Toyama, State Minister of Finance (9:00-11:22, 11:29-11:38); From the Cabinet Office:
Ichiro Miyashita, State Minister of Cabinet Office (9:00-11:22, 11:29-11:38)

Release dates and times:: Statement on Monetary Policy -- Thursday, December 19, 2019 at 11:45
Summary of Opinions -- Friday, December 27, 2019 at 8:50
Minutes of the Monetary Policy Meeting -- Friday, January 24, 2020 at 8:50