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

China travel recovery: Timings are clear, but magnitude remains uncertain for 2023

The late December announcement of China’s intention to re-open its borders for travel took the international community by surprise, with little time to prepare. Border re-opening fell just before Lunar New Year, which proved to be significantly stronger than the last with domestic travel reportedly at 89% of 2019 levels and an initial surge in both inbound and outbound visits, albeit to levels well below those in 2019.

Find Out More
tokyo

Post

Japan: Incoming Governor Ueda is entrusted to tweak the YCC

At Governor Kuroda's final policy meeting, the Bank of Japan (BoJ) left short-term policy rates at -0.1% and long-term rates at around 0%. Despite mounting pressures on the 10-year JGB, the target range was kept at +/-0.50ppt.

Find Out More

Post

Implications of US semiconductor export controls for China

In sizing the macro impact of recent US semiconductor export controls on China, we estimate a near-term drag of around 5bps from 2023 GDP levels. Over the medium term (2024-2026), the impact of controls rises to up to a cumulative 0.8% hit to GDP levels.

Find Out More