… including in places completely unrelated to the Bank of Japan, or even Japanese government policy.
It’s been a big day for the Bank of Japan, although nowhere near as big as April 4. First, let’s look at this:
This re-affirms what the BoJ said on April 4 when announcing the big new “Quantitative and Qualitative Monetary Easing” programme: that the BoJ will buy assets at a rate of Y60-70tn per year in order to double the monetary base.
All well and good, though the BoJ wasn’t expected to change its QE programme today, so it didn’t stop the yen strengthening somewhat.
It’s the BoJ’s inflation and GDP forecasts that were most anticipated.
They have been bumped up a lot; the key numbers are 1.4 per cent CPI growth in 2014 (up from the January estimate 0f 0.9), and 1.9 per cent for 2015 (that year hadn’t been previously forecast, but is close to the BoJ’s 2 per cent target):
The opening comments are also thoroughly positive:
Japan’s economy has stopped weakening and has shown some signs of picking up. Looking ahead, it is expected to return to a moderate recovery path around mid-2013, mainly against the background that domestic demand remains resilient due to the effects of monetary easing as well as various economic measures, and that growth rates of overseas economies gradually pick up. Thereafter, while the economy will be affected by the front-loaded increase and subsequent decline in demand prior to and after the two scheduled consumption tax hikes, it is likely to continue growing at a pace above its potential, as a trend, as a virtuous cycle among production, income, and spending is maintained.3
However, as an exercise in confidence-boosting, the rest of the statement is let down somewhat by a detailed list of ‘assumptions’ on which that more positive outlook is premised:
First, assuming that global financial markets remain generally stable, the growth rates of overseas economies, including the United States and China, are expected to gradually pick up, albeit moderately. Such developments overseas, as well as the yen’s depreciation in the foreign exchange market, are likely to support an increase in Japan’s exports.
Second, financial conditions are expected to ease further as the Bank of Japan steadily implements “quantitative and qualitative monetary easing.” Specifically, quantitative and qualitative monetary easing is expected not only to work through such transmission channels as longer-term interest rates and asset prices, but also to lower real interest rates through a pick-up in expected inflation rates that is caused by fundamental changes in expectations. Such stimulative effects on private demand are likely to strengthen with improvement in economic conditions.
Third, public investment is expected to continue increasing at a high level for the time being, mainly reflecting various economic measures and increases in the budget associated with reconstruction after the earthquake disaster.
Fourth, firms’ and households’ medium- to long-term growth expectations are expected to rise moderately as the government’s regulatory and institutional reforms make progress, and as firms’ efforts to tap potential demand at home and abroad proceed.
It’s only realistic to say that there are many other factors determining inflation and growth, but it seems a little mixed, as far as being an attempt to proclaim the BoJ’s confidence in the effectiveness of the BoJ’s own actions. Only one of the four above, you’ll note, refers to the bank’s easing programme. The first assumption — that growth will pick up elsewhere — seems particularly bold.
If nothing else, the inclusion of the other assumptions makes it a little difficult to tease out what the bank expected from the quantitative easing programme alone. The previous set of inflation and growth forecasts, from the Shirakawa-era BoJ on January 22, was a much more pessimistic document, but it had few such caveats beyond saying that it expected the government to carry out the reforms specified in the ‘Joint Statement‘ by both the bank and the government in October.
Meanwhile, the March consumer price inflation data was also out today and it showed that there is much work to do, with an 0.5 per cent year-on-year fall in prices excluding fresh food. However the FT’s Ben McLannahan notes that Tokyo core CPI, which is seen as an early indicator of broader trends, fell 0.3 per cent in April, less than the 0.4 per cent expected.
Related links:
Japan Deflation Deepens as BOJ Maintains Policy Stance: Economy – Bloomberg
BoJ maintains pace of monetary easing – FT
Be excited, be, be excited – FT Alphaville