Japan's exports, industrial production hit by developments abroad

With corporate profits being at high levels on the whole, business fixed investment has increased moderately. The employment and income situation has improved moderately on the whole.

Private consumption, despite being affected by price rises, has increased moderately, with the impact of COVID-19 waning, the central bank said.

Public investment has been more or less flat. Financial conditions have been accommodative on the whole, although weakness in firms' financial positions has remained in some segments.

Japan's economy is likely to recover, with the impact of COVID-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodity prices and slowdowns in overseas economies, the central bank said in its latest statement on monetary policy.

Thereafter, as a virtuous cycle from income to spending intensifies gradually, Japan's economy is projected to continue growing at a pace above its potential growth rate, it noted.

On the price front, the year-on-year rate of change in the consumer price index (all items less fresh food) has been at around 4 per cent due to rises in prices of items like energy, food and durable goods. Meanwhile, inflation expectations have risen.

At a recent monetary policy meeting, the central bank decided an interest rate of minus 0.1 per cent to the policy-rate balances in current accounts held by financial institutions at the bank and purchase the necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero per cent.

It will continue to allow 10-year JGB yields to fluctuate in the range of around plus and minus 0.5 percentage points from the target level, and will offer to purchase 10-year JGBs at 0.5 per cent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted.

To encourage the formation of a yield curve that is consistent with the above guideline for market operations, the central bank will continue with large-scale JGB purchases and make nimble responses for each maturity by increasing the amount of JGB purchases and conducting fixed-rate purchase operations, it said in a statement.

The bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen respectively on annual paces of increase in their amounts outstanding.

Fibre2Fashion News Desk (DS)