Japan’s central bank policy unchanged amid surprise dissent

on Sep 21, 2017
Updated: Mar 11, 2020

Coming just hours after the US Federal Reserve’s monetary policy announcement, Japan’s Central Bank, the BOJ, voted to stay the course of its current monetary policy program. The two-day meeting was led by BOJ Governor Haruhiko Kuroda who will step down in April 2018.

Current Japanese monetary policy includes a 0.1% interest rate on the funds financial institutions park at the BOJ overnight. The rate is low to encourage businesses to invest and spend their money elsewhere, in the hope of helping to stimulate price inflation.

While that decision was expected, the newest member of the BOJ decision making board, voted against the majority in his first policy meeting.

Goutish Kataoka argued that the current BOJ policy framework wasn’t robust enough to fuel price inflation by 2018. His dovish view meant the final vote was 8-1, to stick with the current monetary policy plan.

Despite the unexpected dissension, the BOJ agreed to continue the current policy framework which was changed last year. After years of printing money to encourage more spending among businesses and consumers, the BOJ now targets the inflation rate through economic stimulus.

The central bank’s outlook is that inflation will begin to rise some time during 2018. However, Kataoka disagreed with that view.

Right now, the Japanese economy is performing well, expanding at a rate of 2.5%, while unemployment hit a twenty-plus year low. However, price inflation remains stubbornly benign and it’s this that the BOJ has been working to rectify for many years.

The central bank remains upbeat over its plans to help push inflation towards the 2% rate by 2020. However, deflation – falling prices – has been the norm there for some 20 years or so.

The BOJ is currently of the school of thought that a growth supportive policy will help encourage an increase in wages. This should, in turn, promote more spending across the country and lead to much needed price increases.

Then once inflation is on the up, interest rates can begin to rise and the BOJ’s monetary policy could begin to normalise – something other central banks are hoping to do over the coming years.