BOJ Keeps Rates On Hold Citing Global Slowdown

The Bank of Japan kept its monetary policy unchanged at its February meeting held yesterday. While the decision was broadly expected, the market was somewhat taken back by the dovish shift in the BOJ’s commentary.

In the statement issued alongside the monetary policy decision, the BOJ noted that it is now far more pessimistic about the domestic economic recovery and the health of the global economy.

Global Slowdown Weighing on Exports

The bank has previously expressed its view that strong exports and factory output will keep growth momentum in place. However, it tempered this view this time around in light of recent global growth concerns.

The BOJ has now reduced its assessment on foreign economies in light of the slowdown and heightened political uncertainty in Europe. The bank stated that “exports and production have been affected by the slowdown in overseas economies.”

However, the BOJ chief did say that it feels the economy will “continue its moderate expansion, despite being affected by the slowdown in overseas economies for the time being.”

Kuroda expanded on this, saying;

“It is true Japan’s exports and output are being affected by lean overseas growth. On the other hand, domestic demand continues to grow. We maintain our baseline view that the economy is expanding moderately.”

Kuroda: Output Gap is Improving

Kuroda went into further detail about the bank’s economic outlook, stating:

“It is likely to take longer to achieve our price target. However, the output gap is improving … Most board members think it’s more appropriate to patiently maintain our current stimulus programme.”

However, the BOJ chief was quick to add:

“We are not saying that we only care about achieving our price target. Our goal is that prices should rise gradually, reflecting an improvement in corporate profit and job growth rate … We also need to keep in mind the impact our policy has over market functioning and financial intermediation.”

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