BOJ Said to Mull Refraining From 2015 Monetary-Base Forecast

The Bank of Japan is considering refraining from issuing a monetary-base forecast for 2015 to avoid signaling a commitment to easing for a specific time period, according to people with knowledge of the matter.

In April last year, when the BOJ unveiled unprecedented easing, it said the monetary base will rise to 270 trillion yen ($2.65 trillion) by the end of 2014. Now, the central bank may avoid issuing any update for coming years, said the people, who asked not to be named because the talks were private. The BOJ is forecast to leave policy unchanged at a meeting ending tomorrow even after a report today showed weaker-than-forecast growth in the fourth quarter.

Averting any indication of commitments for 2015 would give policy makers greater flexibility as they assess risks to the economy that include a sales-tax increase in April and another potential bump next year. Governor Haruhiko Kuroda and his colleagues have tied easing to the achievement of their 2 percent inflation target, initially anticipated over two years.

“The BOJ wants to emphasize that this is an open-ended program,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former BOJ official. “The BOJ sees no need to make a commitment for a certain period of time without knowing risks they may be facing.”

Kuroda said in December while transparency was important, excessively complicated forward guidance or communication “could be less efficient, and sometimes even disruptive.”

GDP Report

Gross domestic product expanded an annualized 1 percent in the fourth quarter from the previous three months, the Cabinet Office said today in Tokyo, below the 2.8 percent median estimate of economists.

The BOJ has said after every policy board meeting since it began its unprecedented stimulus last April that it will boost Japan’s monetary base -- total money in circulation plus reserve deposits at the central bank -- by about 60 trillion to 70 trillion yen a year, and continue easing as long as needed to achieve stable 2 percent inflation.

Twenty-five of 34 economists forecast the BOJ will add to stimulus by the end of September, according to a Bloomberg News survey conducted Feb. 6-12.

Asset Projections

In addition to the monetary-base forecasts for 2013 and 2014, the BOJ last April released projections for its asset holdings, including Japanese government bonds, exchange-traded funds and real-estate investment trusts.

A lack of new forecasts would reduce transparency in the BOJ’s policy, said Yasuhide Yajima, chief economist in Tokyo at NLI Research Institute.

Outside Japan, central banks have increasingly used what’s called forward guidance to influence market expectations in an effort to boost the effectiveness of their monetary policies.

Bank of England Governor Mark Carney recast that bank’s guideline on Feb. 12 by pledging to keep interest rates at a record low until economic components including jobs, incomes and spending grow at sustainable rates.

While the BOJ said in a statement on May 30 it would buy “approximately 7+ trillion yen” of Japanese government bonds a month, officials’ thinking on that guidance has evolved, according to the people with knowledge of the matter.

The central bank also plans to refrain from offering any guidance on monthly government-bond purchases, the people said.

Appropriate Range

Central bank officials regard a range of 6 trillion yen to 8 trillion yen of government security purchases a month to be appropriate, according to the people. At the same time, the BOJ probably will stop short of codifying that in a policy statement, they said. One option is for Kuroda to specify current thinking on the appropriate monthly range, should he be asked at a press conference, the people said.

The BOJ bought 6.7 trillion yen of government bonds last month and 6.8 trillion yen worth in December, according to its website. The central bank targets a 50 trillion yen annual increase in its JGB holdings as part of its effort to expand the monetary base.

“The bank will need to make some kind of announcement to the market if monthly purchases remain below 7 trillion yen,” Yasunari Ueno, chief market economist at Mizuho Securities Co., wrote in a report on Feb. 4. “This has become a matter of interest to the bond market.”

(Updates with GDP report in second paragraph)
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