The Bank of Japan revised its economic outlook for the first time in 19 months during the two-day policy meeting that ended Tuesday. But that is apparently the only step the central bank is taking at this time.
“The headwinds seen in the first half of this year have ceased,” BOJ Gov. Haruhiko Kuroda told reporters following the meeting. Markets were riled by heightened concerns directed at emerging economies at the beginning of 2016, only to be shocked in June by Britain’s referendum to exit the European Union. The BOJ was forced to loosen its policy in July, raising its target for exchange-traded fund purchases.
“Japan’s economy has continued its moderate recovery trend,” the BOJ said in a statement published after the meeting. The central bank had previously qualified that view by highlighting sluggish exports and production.
The revision is “a step forward” for the bank, Kuroda said at the press conference. “We have determined that the real economy is solid.”
Kuroda also touched on recent declines in the yen. “People repeatedly talk about the soft yen, but the currency has only returned to where it was in February,” Kuroda said. “At this stage, there is no concern that [the yen] is moving too far.” When it comes to exchange rates, this qualifies as an unusually candid comment for a BOJ governor.
The Japanese currency has weakened by roughly 15 yen since the U.S. election, retreating past 118 yen to the dollar on Tuesday. The year began with the yen trading at 120, prior to its march all the way to the 99 yen level this summer on buying by investors seeking safe havens.
But now that Donald Trump has won the U.S. election, investors expect the president-elect to embark on aggressive economic stimulus, a view that is lifting stock prices and interest rates, said Kuroda. “We are currently seeing a strong dollar rather than a weak yen,” he said. He added that the central bank will monitor what the incoming U.S. administration will do and take into account the impact those actions will have on the Japanese economy.
But for now, Kuroda said the BOJ needs to maintain the status quo in monetary policy in order to attain its 2% inflation target. The bank is maintaining its current policy of keeping short-term rates at minus 0.1% and guiding long-dated rates to around zero. Last week’s rate hike in the U.S. is putting upward pressure on 10-year Japanese government bond yields. But Kuroda pointed to lackluster consumer prices as a reason for maintaining the current targets for long-term interest rates, bond purchasing and other policy measures.