Bank of Japan Eases Policy to Counter Earthquake Effects

March 14, 2011

Following a 4 hour, 44 minute meeting, the Bank of Japan released a statement that took several actions to “maintain financial intermediation function an secure smooth fund settlements.”

  • 15 trillion yen ($183 billion) of liquidity (80% of which were same-day delivery) were injected to “maintain financial intermediation function and secure smooth fund settlements.”  Excess balances above the reserve requirements jumped to JPY 25.6 trillion today from JPY 17.66 tln last Friday.
  • The asset purchase program was enlarged by JPY 5.0 trillion ($60 trillion) to 40 trillion yen, and the time horizon for completing such operations was pushed out to June 2012 from the end of thus year.  The allocation of the program’s incremental growth is to consist of JPY 0.5 trillion of JGBs, JPY 1.0 trillion of treasury discount bills, JPY 1.5 trillion of commercial paper, JPY 1.5 trillion of corporate bonds, JPY 0.45 trillion of ETFs and JPY 0.05 tln of T-REITS.  The last two components require permission from the finance minister.
  • Pledged more support if needed.
  • Left the overnight call money target range at zero to 0.1%.
  • Said the economy had been emerging from a deceleration phase when the earthquake struck but that such would exert a widespread geographical effect and that the impacts on industrial output, business sentiment, and consumer confidence were particular concerns.

Japan’s share prices nonetheless plunged 6.2% today.  Excess current account balances held with the BOJ of JPY 25.6 trillion today is above the previous year-to-date average of JPY 18.77 trillion and calendar year averages of JPY 16.80 trillion in 2010, JPY 12.90 trillion in 2009, or JPY 8.08 trillion in 2008.  However, such still lies below the JPY 32.74 trillion of excess reserves promoted in 2005, the final full-year of massive quantitative easing.

The decisions on a zero to 0.1% target interest range and to “provide ample funds sufficient to meet demand in financial markets and to do its utmost to ensure financial market stability” was approved by a unanimous 9-0 vote.  The vote to expand the asset purchase program was 8-1 in favor.  Policy Board member Suda cast a dissenting vote on the allocation of the incremental asset purchases “on the ground that the increase in purchases should be made in risk assets only” rather than “mainly the purchase of risk assets.”

Japan’s overnight target rate has not exceeded 0.5% since September 1995.  For the Fed to match that duration, the Federal funds rate would have to be no higher than 0.5% until at least June 2024!  Imagine that.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.