Bank of Japan policymakers were expected to discuss the effectiveness of recent tweaks to monetary stimulus at a two-day meeting that began Tuesday, with fresh policy changes unlikely amid stubbornly low inflation.
At its July meeting, the central bank’s decision-making Policy Board said it would allow long-term interest rates to drift higher than it had previously allowed, a move Gov. Haruhiko Kuroda said made stimulus more sustainable by preventing the BOJ’s bond purchases from soaking up liquidity and distorting the market.
In an apparent attempt to prevent the move from being viewed by financial markets as a tightening of its ultraeasy policy, the board also added forward guidance — a pledge to keep rates low “for an extended period of time” to ensure the economy can weather challenges including a consumption tax hike scheduled for next year.
Policymakers will debate whether these tweaks are having the intended effects, though many expect it to take several months to gain a clear picture of the situation.
The board will also assess the economic impact of a recent string of natural disasters that have devastated key industrial areas in the country.
Severe flooding and mudslides caused by heavy rains in western Japan killed more than 220 people and destroyed roads and factories in July.
Earlier this month, Typhoon Jebi ripped through the Kansai region and shut down its main airport, while a magnitude 6.7 earthquake rocked Hokkaido and caused massive landslides and a prefecturewide power outage.
Supply chain disruptions and a lull in inbound tourists due to the disasters are expected to cause the economy to slow in the July-September period after logging a robust 3 percent annualized real growth rate in the previous quarter.
The BOJ meanwhile will maintain its short-term interest rate of minus 0.1 percent and benchmark for long-term rates at zero percent, according to sources familiar with the central bank’s thinking.
Due to slow progress in raising inflation to the bank’s 2 percent target, the level it sees as consistent with healthy economic growth, the BOJ has kept an aggressive easing stance for more than five years, even as counterparts in the United States and Europe are stepping back from emergency measures introduced in the wake of the 2008 financial crisis.