In its last monetary policy decision of the year and the first one since the U.S. elections, The Bank of Japan announced it will keep its monetary policy unchanged. It will maintain short-term policy rates at minus 0.1 percent and Japanese government bonds yield-target at around zero. The purchase of government bonds will continue at the current pace of 80 trillion yen a year. (See also: How Negative Interest Rates Work)
The bank upgraded its outlook as the economy has continued its moderate recovery trend. It said corporate profits have been at "high levels," private consumption has remained resilient, and business sentiment and housing investment have picked up. "With regard to the outlook, Japan's economy is likely to turn to a moderate expansion. Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and fiscal spending through the government's large-scale stimulus measures. Exports are expected to follow a moderate increasing trend on the back of an improvement in overseas economies." (See also: The Lost Decade: Lessons From Japan's Real Estate Crisis)
Included in what it sees to be risks to the outlook are developments in emerging and commodity-exporting economies, particularly China, developments in the U.S. economy and the impact of its monetary policy on global financial markets, the consequences stemming from Brexit, prospects regarding the European debt problem, including the financial sector, and geopolitical risks.
The yen has fallen since the U.S. election, raising expectations of a rate hike in the future. However, Governor Kuroda said it is "appropriate to continue with powerful monetary easing" at a news conference today. A weak yen is beneficial for Japan as it boosts imports and helps the the bank achieve its 2 percent inflation target. The bank's optimism did not extend to inflation. It said, "Inflation year-on-year rate of change in the CPI is likely to be slightly negative or about 0 percent for the time being, due to the effects of the decline in energy prices, and as the output gap improves and medium- to long-term inflation expectations rise, it is expected to increase toward 2 percent."