In the Outlook for Economic Activity and Prices, BoJ said the economy is “likely to remain in severe situation for the time being” due to the impact of the coronavirus pandemic. GDP could shrink as much as -5.0% to -3.0% in fiscal 2020. Japan could also return to deflation with core CPI down -0.7 to -0.4%. BoJ added that “future developments are extremely unclear” and risks to both economic activity and prices are “skewed to the downside”.

GDP growth forecast:

• Fiscal 2019 at -0.4% to -0.1% (down from 0.8% to 0.9%).
• Fiscal 2020 at -5.0 to -3.0% (down from (0.8 % to 1.1%).
• Fiscal 2021 at 2.8% to 3.9% (up from 1.0% to 1.3%).
• Fiscal 2020 at 0.8% to 1.6%.

Core CPI forecast (excluding sales tax hike effects):

• Fiscal 2019 at 0.4% (vs 0.4% to 0.5%).
• Fiscal 2020 at -0.7% to -0.4% (down from 0.9% to 1.0%).
• Fiscal 2021 at 0.0% to 0.7% (down from 1.2% to 1.6%).
• Fiscal 2022 at 0.4% to 1.0%.

Full release here.

In an address to the parliament today, BoJ Governor Kazuo Ueda indicated a forward-looking approach to monetary policy, wherein the anticipation of rising real wages could be a determinant for policy normalization, rather than their current state.

Ueda posited, “Real wages would likely have turned positive when a positive wage-inflation cycle kicks off.”

Delving into the timing of potential policy shifts, Ueda mentioned, “But in terms of how long we maintain our massive monetary easing… real wages don’t necessarily have to turn positive before that decision is made.”

Clarifying this point, he further elaborated that “The decision could be made if we can foresee with some certainty that real wages will turn positive ahead.”

Ueda also addressed the persistent gap between current inflation rates and the bank’s longstanding target, stating, “When looking at trend inflation, there’s still some distance towards our 2% target. That is why we are continuing with massive easing.”

BoJ announced yesterday another round of bond purchases to defend the 10-year JGB yield cap at 0.25%. It will carry out unlimited purchases through auctions on April 21, 22, 25, and 26, with 0.25% fixed-rate applied.

“Given recent yield movements on longer-ended notes, we have announced a consecutive unlimited fixed-rate purchase of bonds to achieve our policy to guide the 10-year yield around 0%,” the BoJ said in a statement.

Under the yield curve control framework, BoJ intends to keep 10-year JGB yield at 0%, with allowance to move up and down 0.25%.

BoJ board member Yutaka Harada hailed that the quantitative and qualitative easing (QQE) program boosted productivity and drove down unemployment rate. He said in a speech that “the biggest contribution QQE has made to Japan’s economy was to boost its productivity.” Also, “without QQE, Japan’s jobless rate would not have fallen below 2.5 percent”.

Harada is a persistent dissent in BoJ’s monetary policy decisions. He complained regularly that allowing the long-term yields to move upward and downward to some extent was too ambiguous as the guideline for market operations. Also, he urged to introduce forward guidance that would further clarify its relationship with the price stability target.