Quarterly Economic Forecast: Navigating the New Trade Normal

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a 7-2 majority vote, to set the following guideline for money market operations for the intermeeting period: The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5 percent. With regard to exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) it holds, the Bank decided, by a unanimous vote, to sell these assets to the market in accordance with the fundamental principles for their disposal, which include the principle to avoid inducing destabilizing effects on the financial markets. The scale of the sales will generally be equivalent to that for the "stocks purchased from financial institutions" (see Attachment).1,2 Japan's economy has recovered moderately, although some weakness has been seen in part. Overseas economies have grown moderately on the whole, although some weakness has been seen in part, reflecting trade and other policies in each jurisdiction. Exports and industrial production have continued to be more or less flat as a trend, although there has been some front-loading and a subsequent reactionary decline, due to the increase in U.S. tariffs. Corporate profits have remained at high levels on the whole, although downward effects due to tariffs have been seen in manufacturing. Business fixed investment has been on a moderate increasing trend. Private consumption has been resilient against the background of an improvement in the employment and income situation, despite weakness in consumer sentiment due to the impact of price rises and other factors. Housing investment has been relatively weak. Public investment has been more or less flat. Financial conditions have been accommodative. On the price front, with moves to pass on wage increases to selling prices continuing, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) has been in the BOJ Takata, Tamura Voted Against Decision BOJ decides to sell ETFs, J-REITs in markets in alignment with fundamental principles of their disposal. BOJ warns trade policies may slow Japan’s growth temporarily before it rebounds. BOJ forecasts underlying inflation to pause with growth slowdown before rising gradually.