(BOJ) Statement on Monetary Policy, July 15, 2008

1. At the Monetary Policy Meeting held today, the Bank of Japan decided, by a unanimous vote,[Note] to set the following guideline for money market operations for the intermeeting period: The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.5 percent.

2. Economic growth is slowing further reflecting weaker growth in business fixed investment and private consumption against the backdrop of high energy and materials prices. While growth will likely remain slow for the time being, it is expected to gradually return onto a moderate growth path thereafter. CPI inflation rate (excluding fresh food) is currently around 1.5 percent due to increased prices of petroleum products and food. CPI inflation is expected to gradually moderate after becoming somewhat elevated in coming months. These suggest that the possibility of the economy remaining on a sustainable growth path with price stability is relatively high.

3. Compared with the projections presented in the April Outlook for Economic Activity and Prices (Outlook Report), growth prospects have shifted somewhat lower, while prospects for inflation, in terms of both CGPI and CPI (excluding fresh food), have shifted higher, mainly for fiscal 2008.

4. With regard to risk factors, global financial markets remain unstable and there are downside risks to the U.S. and the world economy. In addition, weaker income generation due to upsurge in commodity prices has the potential to weigh on domestic private demand. These downside risks to the economy demand attention. On prices, inflationary pressures are increasing globally. In Japan, it is necessary to be mindful of upside risks due to changes in the inflation expectations of households and the price-setting behavior of firms in addition to developments in energy and materials prices. Meanwhile, if the downside risks to the economy turn out to decrease, this will increase the risk of possible swings in economic activity and prices due to prolonged period of accommodative financial conditions.

5. The Bank, while maintaining the smooth functioning of the money market, will carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement its policies in an accordingly flexible manner.

[Note] Voting for the action: Mr. M. Shirakawa, Mr. K. G. Nishimura, Ms. M. Suda, Mr. A. Mizuno, Mr. T. Noda, Mr. S. Nakamura, and Mr. H. Kamezaki. Voting against the action: None.

Forecasts of the Majority of Policy Board Members

Risk Balance Charts

(Reference)

Meeting hours:

July 14: 14:00-16:31
July 15: 9:00-13:19

Policy Board members present:

Masaaki Shirakawa (Governor)
Kiyohiko G. Nishimura (Deputy Governor)
Miyako Suda
Atsushi Mizuno
Tadao Noda
Seiji Nakamura
Hidetoshi Kamezaki

(Others present)

July 14

From the Ministry of Finance:

Chikara Kawakita, Deputy Vice Minister for Policy Planning and Co-ordination (14:00-16:31)

From the Cabinet Office:

Bunshichi Fujioka, Vice-Minister for Policy Coordination (14:00-16:31)

July 15

From the Ministry of Finance:

Chikara Kawakita, Deputy Vice Minister for Policy Planning and Co-ordination (9:00-12:20,12:22-13:19)

From the Cabinet Office:

Bunshichi Fujioka, Vice-Minister for Policy Coordination (9:00-12:20,12:22-13:19)

Release of the Monthly Report of Recent Economic and Financial Developments:

2:00 p.m. on Wednesday, July 16 (Japanese)
4:30 p.m. on Thursday, July 17 (English)

Release of the minutes:

8:50 a.m. on Friday, August 22

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