World Economy

BOJ Stands Pat on Rates, Cuts Economic Outlook

BOJ Stands Pat on Rates, Cuts Economic OutlookBOJ Stands Pat on Rates, Cuts Economic Outlook

The Bank of Japan left its monetary policy unchanged Tuesday but downgraded its view of the economy, opening the door to further action in months ahead.

The BOJ’s decision followed the European Central Bank’s moves last week to cut negative rates further and expand its asset-buying program, underscoring the struggles of major central banks to counter slowing global growth, MarketWatch reported.

The BOJ stood pat despite the trouble facing Abenomics, Prime Minister Shinzo Abe’s growth program. Conditions have improved little—some have worsened—since the BOJ decided in late January to impose negative rates, an unorthodox step seen as a desperate attempt to ignite growth.

Japan’s economy, which shrank during the fourth quarter, is expected to grow only slightly, at best, during the current one. Real wages are falling and aren’t expected to rise significantly this year. Crucially, inflation is weak and getting weaker, and household inflation expectations are sagging.

The central bank said exports and production “have been sluggish due mainly to the effects of the slowdown in emerging economies,” and added the word “trend” to its description of Japan’s recovery.

It also downgraded inflation expectations, saying they have recently weakened. It repeated its usual statement that it will take additional easing steps if necessary to meet its inflation target of 2%, with options including more asset purchases and pushing rates further into negative territory.

In lowering its view of the economy, the BOJ may have set the stage for further easing at its next policy meeting in April, said Yusuke Sakai, senior trader at T&D Asset Management.

“This may be a strategic move ahead of the April meeting,” he said.


In its statement, the BOJ devoted more attention than usual to overseas conditions. It said risks to its optimistic outlook in Japan included the “European debt problem” and “developments in the US economy and the influences of its monetary policy response to them on the global financial markets.”

A couple of slight adjustments to its negative rate policy indicate the BOJ is still struggling to deal with a backlash in Japan. It said it would exempt from the negative interest rate what is known as money reserve funds, or cash parked at brokerages by individual investors to trade stocks. There have been concerns that penalizing these depositors would discourage consumers from buying stocks, in a blow to the government’s long-stated goal to encourage the Japanese to shift more of their bank savings into investments.

The central bank also said it would ease the burden of negative rates on commercial banks if they borrow more from the BOJ’s special loan programs.

The BOJ had hoped negative interest rates would revive its long fight to defeat the deflation that has plagued Japan intermittently for nearly two decades. It said it would cut the rate further, if necessary.