No surprises out of the Bank of Japan on Wednesday, as the central bank announced that both interest rate and the size of its annual bond purchases program are to remain unchanged. Of 34 economists polled by Bloomberg ahead of Wednesday’s announcement, none had expected any deviation in policy at the conclusion of the BOJ’s April meeting.
The BOJ said in a statement that the motion was carried by a majority 8-to-1 vote. The dissenting board member had put forward a motion to slash the annual bond purchase program to 45 trillion yen.
In commenting on the economy, the BOJ said exports have been picking up and business fixed investment “have been on a moderate increasing trend as corporate profits have improved.” The BOJ added that public investment has plateaued at a high level, while private consumption has been resilient against a background of steady improvement in employment and income. Still, the central bank noted there were pockets of weakness, describing income growth in some areas as “sluggish.” The central bank also reiterated its view of general improvement in housing and economic momentum.
Capital Economics analyst Marcel Thieliant said the BOJ was likely readying for a further increase in its annual bond buying target to 90 trillion yen later this month:will
The key question ahead of the meeting was whether the Bank would provide any signals that additional easing is imminent. The statement at least was virtually unchanged, and thus did not provide any indications that we should expect more stimulus anytime soon. However, the meeting ended unusually late, at 12.36 pm Tokyo time, which suggests that Board members had plenty to discuss. Governor Kuroda will provide additional insights into the Bank’s thinking at his press conference later today.
In any case, Mr Kuroda has a record of springing surprises, and we think there are plenty of reasons to raise the pace of asset purchases, including the likely moderation in growth at the start of the year as well as the sharp slowdown in inflation.
Our forecast remains that the Bank will step up the pace of easing from the current ¥80 trillion to ¥90 trillion per annum later this month. Most analysts expect additional stimulus to be introduced much later. As a result, we expect the yen to weaken to 140 against the dollar by year-end, and the Nikkei to climb to 21,000 from yesterday’s close of 19,738.