BoJ’s Summary of Opinions: YCC, negative rate, and other massive stimulus tools have accomplished their roles

Bank of Japan (BoJ) published the Summary of Opinions from its March monetary policy meeting on March 18 and 19, with the key findings noted below.

Key quotes

“One member said YCC, negative rate, and other massive stimulus tools have accomplished their roles.”

“One member said BoJ must guide monetary policy using short-term rate as main policy means, in accordance to economic, price, and financial developments.”

“One member said shifting to 'normal' monetary easing is possible without causing short-term shocks, may have a positive impact on the economy in medium-, long-term perspective.”

“One member said chance of policy shift causing big market volatility is small.”

“One member said future policy guidance very important so that BoJ can slowly but steadily proceed with policy normalization.”

“One member said appropriate to give some room for allowance in BoJ's bond buying operation.”

“One member said appropriate to revise policy after confirming that smaller firms are able to sufficiently hike wages.”

“One member said ending YCC and negative rate simultaneously could cause disruption in long-term rate, financial environment.”

“One member said changing policy now could delay achievement of BoJ's price target.”

“One member said important to make use of expected outcome from BoJ's policy review in future policy guidance.”

“One member said Japan's low natural rate of interest, lagged effect of monetary policy may be behind slow recovery pace of economy.”

“One member said virtuous cycle between wages and prices has become more solid.”

“One member said highly likely that mechanism behind price developments will be consistent with price target.”

Market reaction

Following the BoJ’s Summary of Opinions, the USD/JPY pair is losing 0.02% on the day to trade at 151.30, as of writing.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

Is the Bank of Japan’s ultra-loose policy likely to change soon?

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. Still, the Bank judges that the sustainable and stable achievement of the 2% target has not yet come in sight, so any sudden change in the current policy looks unlikely.

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