While Mr. Kiuchi made a new proposal that the Bank of Japan should conduct the present asset purchase programme in such a way to increase the JGB holdings and the monetary base by JPY45 trillion annually, the proposal was dissent with 1-8 vote and the BoJ left the present monetary policy settings unchanged. As the BoJ increased the purchase of 1-5yr JGBs in April, the central bank will continue to go with the massive easing policy by accepting its unwanted side effects.
Relative to the last monetary policy statement, the statement this time suggested that the result of the Tankan survey was not a factor to concern. Also, though the judgment of the present inflation rate was revised down further, the BoJ left did not change the stance to accept negative inflation rate at least temporarily. Although the BoJ will have to revise down its inflation outlook in the semi-annual report released at the end of the month, we do maintain our view that the BoJ will not over-react to the present disinflationary force.
Downward pressure on the CPI (excluding fresh food) inflation rate will be alleviated by the surcharge on electricity charge due to the facilitation on reusable energy power generation from May. Although this could support the BoJ’s inflation outlook, it could also be a risk to its scenario that decline in energy prices would boost household purchasing power.