Japan: Separation of Policy Interest Rate Adjustment and Treasury Bond Purchase
2024-06-18
■ The Bank of Japan has made a significant decision to reduce the purchase of long-term treasury bonds, a move that will be further detailed in a reduction plan to be proposed at the end of July.
■ There has been no significant change in the understanding of the economy and prices, and the judgment of interest rate hikes may remain until after September.
At the financial policy meeting held from June 13 to 14, the Bank of Japan decided to keep the policy interest rate unchanged and planned to continue to purchase long-term treasury bonds at their current scale (up to 6 trillion yen per month) before the next meeting (July 30 to 31), and then gradually reduce the purchase volume. The meeting from July 30th to 31st will propose specific plans for reducing asset holdings in the next 1-2 years. Considering the opinions of market participants at the Bond Market Participants Meeting held during this period, the duration and speed of reducing purchases will be considered. The long-term treasury bond purchase plan for July and September announced on June 28, is expected to remain at the current level, and the specific changes will reflect the decisions of the next meeting at the end of July. Before July, the purchase proposal amount is expected to be adjusted within the current range to cope with sharp market fluctuations such as exchange rates.
There have been no significant changes in the economic and price situation since the April Economic and Price Outlook report. Looking ahead to maintaining expectations, it is expected that in the context of moderate economic growth and a relaxed financial environment abroad, the positive cycle mechanism of income to expenditure will gradually strengthen and maintain growth rates higher than potential. The price outlook remains stable and is expected to fluctuate around the "price stability target" level without indicating the need for early interest rate hikes.
During the meeting, Bank of Japan President Ueda clarified the central bank's stance. While reducing treasury bond purchases is expected to be significant, it will not be seen as an active monetary policy tool. The possibility of policy interest rate adjustments is relatively low, with the option of implementing interest rate hikes in July still on the table. The central bank also closely monitors exchange rate fluctuations, a shift from the previous meeting's stance of avoiding direct policy responses.
Although the Bank of Japan decided to promote the normalization of financial policy by reducing the purchase of long-term treasury bonds, the loose monetary policy is expected to be adjusted at a moderate pace as there is no significant change in the economic and price outlook. Against the backdrop of sluggish domestic demand, the impact of policy interest rate hikes on the real economy may be more cautious than the reduction of quantitative easing policies. Therefore, after a decrease in purchases, judgment may be retained until September.
■ There has been no significant change in the understanding of the economy and prices, and the judgment of interest rate hikes may remain until after September.
At the financial policy meeting held from June 13 to 14, the Bank of Japan decided to keep the policy interest rate unchanged and planned to continue to purchase long-term treasury bonds at their current scale (up to 6 trillion yen per month) before the next meeting (July 30 to 31), and then gradually reduce the purchase volume. The meeting from July 30th to 31st will propose specific plans for reducing asset holdings in the next 1-2 years. Considering the opinions of market participants at the Bond Market Participants Meeting held during this period, the duration and speed of reducing purchases will be considered. The long-term treasury bond purchase plan for July and September announced on June 28, is expected to remain at the current level, and the specific changes will reflect the decisions of the next meeting at the end of July. Before July, the purchase proposal amount is expected to be adjusted within the current range to cope with sharp market fluctuations such as exchange rates.
There have been no significant changes in the economic and price situation since the April Economic and Price Outlook report. Looking ahead to maintaining expectations, it is expected that in the context of moderate economic growth and a relaxed financial environment abroad, the positive cycle mechanism of income to expenditure will gradually strengthen and maintain growth rates higher than potential. The price outlook remains stable and is expected to fluctuate around the "price stability target" level without indicating the need for early interest rate hikes.
During the meeting, Bank of Japan President Ueda clarified the central bank's stance. While reducing treasury bond purchases is expected to be significant, it will not be seen as an active monetary policy tool. The possibility of policy interest rate adjustments is relatively low, with the option of implementing interest rate hikes in July still on the table. The central bank also closely monitors exchange rate fluctuations, a shift from the previous meeting's stance of avoiding direct policy responses.
Although the Bank of Japan decided to promote the normalization of financial policy by reducing the purchase of long-term treasury bonds, the loose monetary policy is expected to be adjusted at a moderate pace as there is no significant change in the economic and price outlook. Against the backdrop of sluggish domestic demand, the impact of policy interest rate hikes on the real economy may be more cautious than the reduction of quantitative easing policies. Therefore, after a decrease in purchases, judgment may be retained until September.