The Bank of Japan (BoJ) announced that it is taking steps to improve the transparency in policy decision making at its meeting on Friday. It plans on releasing more information about is decisions through summaries of opinions from policy meetings every week.
Alvin Liew, a senior economist at United Overseas Bank in Singapore, believes that this is a much needed change.”Sometimes the minutes come a bit too late, in my view, to be of much use. This makes it more relevant, rather than the minutes coming out after another policy decision has been done.”
The BoJ also decided on reducing the number of meetings from the current 14 to 8, and to increase the number of economic outlook reports from 2 to 4. All of these decisions will put the BoJ more in line with the practices of other major central banks in the world, adding to transparency and enabling a better understanding of its policy making process.
Japan to Continue its Quantitative Easing (QE)
The BoJ, however, plans on sticking to its massive stimulus program. The central bank has planned on increasing the Japanese market’s money supply at an annual pace of US$660 billion through purchases of risky assets and government bonds, in an 8 to 1 vote.
Haruhiko Kuroda, the BoJ’s governor, told the press that the Japanese economy is recovering moderately and its long term inflation expectations are appearing to rise. Indeed, expected GDP growth has been revised from an annualized 1.5% in the fourth quarter of 2014 to an annualized 3.9 % in the first quarter of 2015, showing a positive sign of expected recovery.
However, the Nikkei 225 seems to not have reacted much. The stock market kept on to a rise around 0.8% and the yen has been mostly unchanged against the US Dollar since the beginning of the year.
As for the monetary easing, Japan’s core inflation’s rise of 0.3% from a year earlier puts the BOJ in an inevitable position to step up the monetary easing.
“Despite higher wages, consumer spending has remained weak in Japan so far, well below the normal levels seen before last year’s sales tax hike. Meanwhile, inflation numbers are hovering around 0 percent. There is insufficient evidence to show that a wage-driven recovery in the domestic economy is already in place, or the demand-driven inflation is already building up. Moreover, exports’ growth has started to slow”, explained DBS Bank in a report.
However, not everyone thinks Japan should take its easing further. Nicholas Weindling, a fund manager at JP Morgan Asset Management, shared his concern about the world’s most aggressive Japanese monetary policy.
“I’m not quite sure why the BOJ would need to stimulate more, because as far as we can tell, the economy is getting better slowly”, he said. “Inflation is quite low, but it should tick up as you go the end of the year.”
Although Weindling shows disagreement in pushing easing measures in Japan, he still noted that, as the planned consumption tax hike in 2017 is approaching, there still might be a need to reconsider it.