Bank of Japan expected to wait-and-see as clouds gather over global economy

Bank of Japan expected to wait-and-see as clouds gather over global economy

After two days of deliberations, Japan’s central bank will today announce a monetary policy decision. Discussions come amid the Bank

bank of japan global clouds

Photo: Yuki Nakao

After two days of deliberations, Japan’s central bank will today announce a monetary policy decision.

Discussions come amid the Bank of Japan’s concerns that a slowdown in China’s growth and heightened regional trade frictions will diminish global Japanese export demand. This would prevent the Bank from raising the current 0.8% inflation rate to its 2% target, given decreasing consumption.

Indeed, concerns over a global slowdown are increasingly preoccupying the minds of central bankers around the world. Last week, the European Central Bank announced several measures to loosen monetary policy, as pervasive uncertainties over Brexit, the US-China trade war and populist spending measures eat away at business and consumer confidence.

Last week, Bank Governor Haruhiko Kuroda announced that the Bank was debating two options: lowering interest rates or expanding the bank’s asset purchases. The Bank will almost certainly maintain rates at -0.1% today, as it continues to express its desire to raise prices with quantitative easing. However, some observers worry that this policy will be ineffective because the Bank could run out of yen-denominated assets to purchase, or because the value of domestic assets could collapse. Expect the bank to continue holding its ground against raising rates unless these potential negative effects of quantitative easing become apparent.

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