Bank of Japan Eased

February 14, 2012

The Policy Board expanded quantitative easing and announced a formal inflation target.  Although these steps were flagged as possibilities in my BOJ meeting preview, they were not widely predicted, and the yen slid through 78.0 in response.  The Board met for six hours and 13 minutes over two days and reached its decision by a unanimous 9-0 vote.  Actions taken were

  1. Explicitly defining medium- to long-term price stability as a 1.0% rate of consumer price inflation.
  2. Reaffirming a target overnight money interest rate range of zero to 0.1%, which has been in place since October.
  3. Promising not to abandon this virtual zero interest rate policy (ZIRP) until 1.0% inflation is clearly in sight without significant downside risks.
  4. Raising the asset purchase program’s (APP) ceiling from JPY 55 trillion to JPY 65 trillion (about $835 billion).
  5. Indicating that JPY 43 trillion had been done previously and that officials intend to complete the remaining JPY 22 trillion by end-2012.  That pace of roughly JPY 2.1 trillion (some $27 billion) per month represents an accelerated pace of quantitative easing.
  6. Indicating as well that the incremental JPY 10 trillion of the APP will involve JGBs (Japanese government securities.

A statement from officials reiterated previous characterizations of Japan’s economy.  Activity is more or less flat, and so is core CPI inflation.  Recovery will occur eventually.  High uncertainty exists both at home and abroad.  Monetary policy makers aim to promote easier financial conditions.  Governor Shirakawa denied that today’s actions are a response to pressure from government officials.  Countering upward pressure on the yen and deflation remain are high objective.

The Board next meets on March 12 and 13th.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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