Japan's Central Bank Keeps Policy Unchanged Amid Unexpected DissentBy
Dovish economist Kataoka argues easing not powerful enough
Result still the same as policy rates, asset buying unchanged
The Bank of Japan kept its monetary stimulus unchanged Thursday, but a dovish new board member opposed the decision in his first meeting, an unexpected dissension on a board chosen entirely by Prime Minister Shinzo Abe.
Still, BOJ Governor Haruhiko Kuroda and his board left its target interest rates and asset purchase program unchanged, a decision expected by all 45 economists surveyed by Bloomberg. The vote was 8-1, with Goushi Kataoka objecting.
Kataoka argued that there was little chance of reaching the BOJ’s inflation target by the projected time frame of around fiscal 2019, according to the central bank’s policy statement. He said the effects of the current yield curve program weren’t strong enough, though inflation was likely to continue rising for the time being due to oil prices and foreign-exchange rates.
The BOJ statement didn’t mention any policy suggestions from Kataoka, an economist who advocates expansionary fiscal and monetary policies. In November 2016, he argued that the BOJ should have expanded its easing, just two months after the implementation of the yield curve control program. He has said fiscal policy should play a greater role in revitalizing the economy, and supports shelving a sales-tax increase planned for October 2019.
Kataoka, formerly with Mitsubishi UFJ Research and Consulting Co., and former private-sector banker Hitoshi Suzuki replaced two staunch dissenters on the board in July.
Opposing board members haven’t stopped Kuroda from advancing radical stimulus measures in the past. Some analysts had expressed concern that a loss of dissenting views on the board would end robust discussion. Kataoka’s position that the BOJ is not on course to reach its goals may revive debate in an unexpected manner.
BOJ watchers increasingly expect the central bank to stay the course at least through the end of Kuroda’s current term in April, even as the balance sheet nears the size of Japan’s economy. That leaves Japan’s central bank increasingly out of step with its global peers and means an ever-growing balance sheet.
"The results of the meeting were as expected," said Junko Nishioka, chief economist for Japan at Sumitomo Mitsui Banking Corp. "The fact that Kataoka threw in a dissenting vote was a surprise, but I believe his stance is not that he’s against the easing policy itself, but rather that the volume of the measures is lacking.”
The BOJ’s decision came hours after the Federal Reserve announced a plan to begin selling some of the assets on its balance sheet beginning next month, as it moves further down the path toward policy normalization. The Fed also stuck with its forecast to raise interest rates again this year. The Fed’s stance also added to weakening of the yen.
The prospect of further rate hikes in the U.S. will work in Japan’s favor by keeping pressure on the yen and supporting prices, said Takeshi Minami, chief economist at Norinchukin Research Institute. "I think the BOJ will be tenacious and maintain its resolve on the 2 percent goal," Minami said. "Just because the U.S. and Europe are changing their direction, doesn’t mean Japan will follow."
While the BOJ remains far from its 2 percent inflation target, the economy is growing at well above its potential rate, at an annualized pace of 2.5 percent in the second quarter, and the jobless rate has hit the lowest in more than two decades. Kuroda is betting conditions will propel inflation further toward its target, from 0.5 percent in July.
Still, most economists are unconvinced the BOJ will ever achieve 2 percent inflation, according to a Bloomberg survey. And as the BOJ stays the course, the side effects of its stimulus program grow in weight, raising pressure on the central bank to at least discuss what an exit might look like.
Key elements of the BOJ’s monetary stimulus policy, which were left unchanged on Thursday, are:
- A negative interest rate of minus 0.1 percent applied to some of the money financial institutions keep at the BOJ.
- Purchases of government bonds, which aim to keep the 10-year bond yield at about 0 percent.
- To increase its holdings of JGBs by about 80 trillion yen a year, although even Kuroda has acknowledged that it’s been rising by far less.
- To buy ETFs so holdings rise by 6 trillion yen a year and to keep increasing its holdings of JREITs by 90 billion yen.
- Holdings of commercial paper will continue to be about 2.2 trillion yen, while corporate bond holdings will stay at about 3.2 trillion yen.
— With assistance by Yuko Takeo, Yoshiaki Nohara, Connor Cislo, and Andy Sharp