Research Briefing | Sep 26, 2022

BoJ to look through a temporary decline in monetary base

BoJ to look through a temporary decline in monetary baseThe Bank of Japan (BoJ) left monetary policy unchanged at today’s (22nd Sep) meeting, maintaining current short- and long-term interest rates, despite another wave of yen weakening and upward pressures on JGB yields. The strategy of offering daily, unlimited fixed-rate JGB purchases has been defending the +/-0.25% range for 10yr JGBs, with a limited amount of purchases.

What you will learn:

  • The BoJ will gradually terminate a lending scheme that was set up to support firms’ liquidity funding during the coronavirus pandemic by the end of March 2023. The repayment of lending under the scheme increased during H1 2022, causing a y/y decline in the BoJ’s balance sheet and monetary base in August.

  • Although the monetary base is projected to register negative y/y growth for almost a year, the BoJ will look through it as a short-term fluctuation without changing its commitment to “keep expanding the monetary base until the y/y increase in the CPI stays above the 2% target in a stable manner”. The BoJ’s policy focuses more on interest rates instead of quantitative easing.

  • Although foreign investors might continue challenging the yen and JGB yields until the Fed’s rate tightening cycle peaks, we believe that the BoJ has no choice but to stick to the current Yield Curve Control (YCC) policy even after the term of Governor Kuroda ends in April 2023.
Back to Resource Hub

Related posts

Post

Identifying future manufacturing hot spots in Japan

Japan's industries, which are exposed more to international demand than to tepid domestic demand, are often concentrated in certain cities. This makes these cities more dynamic than others, a feature masked when only looking at national data. Understanding the industrial landscape helps identify growth opportunities across various sectors, as job creation and incomes drive spending.

Find Out More

Post

Tariff turbulence will diminish the BoJ’s chance of rate hike

The Bank of Japan kept its policy rate at 0.5% at Thursday's meeting. Considering the significant downgrading of growth and inflation forecasts in its Quarterly Outlook Report, the central bank will likely take a long pause to assess the impact of high global trade policy uncertainty on growth and inflation.

Find Out More

Post

Japan’s tariff turbulence to flatten near-term growth

We've cut our GDP growth forecasts for Japan by 0.2ppts to 0.8% in 2025 and by 0.4ppts to 0.2% in 2026, reflecting higher US tariffs and heightened global trade policy uncertainty. We now forecast that Japan's economy will barely grow over 2025-2026 on a sequential basis.

Find Out More