Since Japan is the world’s third largest economy, the Bank of Japan’s (BOJ) monetary policy decisions are always closely watched by investors. But with Japan implementing its first sales-tax hike since 1997, market players are even more vigilant over what the central bank has to say.
Here are seven quick points from the latest BOJ statement:
1. No policy changes from the BOJ
As expected, the BOJ members kept their interest rates at record lows and its plans to increase Japan’s monetary base at the rate of 60-70 trillion JPY a year.
2. No threat from the sales-tax hike…yet.
It’s only been implemented for a week but analysts couldn’t help but asking about the impact of Japan’s increase in sales tax from 5% to 8% and comparing it to the last sales tax hike in 1997 that triggered a 15-year deflation.
BOJ Governor Haruhiko Kuroda brushed off the concerns, saying that the BOJ has already considered the tax hike in its projections and that the hit is expected to wane by summer. He also assured that the effects of the 1997 tax hike are unlikely to repeat themselves, as the economy was also dealing with the Asian financial crisis and banking sector troubles at the time.
3. Japan is on track to meet its 2% inflation target by April 2015.
The BOJ confident that Japan is on track to meet its 2% inflation target by April 2015. However, the central bank also estimates inflation to stay at around 1.25% “for some time” and is ready to adjust policy if needed.
4. Further easing isn’t on the BOJ’s short-term calendar
Kuroda firmly reiterated that they’re not considering additional easing measures for now. He also deflected any discussion of the BOJ’s exit policies.
5. Upbeat economic assessment
The BOJ says the economy has continued to recover moderately as a trend even if it’s experiencing tax hike-related fluctuations. Industrial production is also on a moderate increasing trend thanks to demand developments from both abroad and at home.
Employment is also nearing full capacity with Japan looking at a 3.6% unemployment rate, almost at the BOJ’s structural employment estimates of 3.5%. Last and definitely the most emphasized among the reports is the Tankan surveys showing improvement in business sentiment. Although business owners are worried over the sales-tax hike, Kuroda pointed out that the index figures are still on an uptrend.
6. A board member proposed a more flexible inflation target
Board member Takahide Kiuchi wanted the BOJ’s 2% inflation target to be characterized as something to be implemented in the “medium to long term” and label the current easing policies as “an intensive measure with a time frame of about two years.” His proposal was rejected with an 8-1 vote.
7. This is Kuroda’s first livecast press conference
Kuroda says the change from press to live conference stems from requests from reporters and the BOJ wanting to deliver its messages quicker. Of course, it also doesn’t hurt that it’s the “in” thing to do among major central banks these days.