Bank of Japan Eases

September 19, 2012

The BOJ Policy Board met for six hours and 35 minutes over two days and then released a statement unveiling several changes in its stance that were agreed by a unanimous 9-0 vote of committee members.

  • The size of the Asset Purchase Program (APP) was increased for the third time this year, this time by a total of JPY 10 trillion from JPY 70 trillion previously to JPY 80 trillion. 
  • The incremental JPY 10 trillion addition is to be split evenly between Treasury discount bills and Japanese government bonds. 
  • The mid-2013 target for activated APP is not JPY 75 trillion, up from a prior objective of JPY 70 tln.  The full JPY 80 tln target will be reached by end-2013.
  • The minimum bidding yields of 0.1% for outright purchases of JGBs was dropped.  This extends to long-term securities a relaxed requirement on purchases of notes with a maturity of less than one year, which officials has enacted at their July meeting.
  • Officials downgraded their overall assessment of Japan’s economy to “recovery paused.”  This matches the central bank view with the previously more pessimistic government assessment.  The cabinet met downgrades in both August and the current month.  BOJ officials, by contrast, had stuck to the view in August that the economy had begun to pick up and would likely expand moderately in the future.
  • The uncollateralized overnight call rate target of 0-0.1% was not changed.

The objectives of these actions appear to be firstly to demonstrate cooperation with the government in the task of promoting growth in the face of a challenging global environment and to do this through steps that officials hope can reduce long-term interest rates and the external value of the yen.  The current interest rate target corridor has been in place since October 2010.  That was also the month when an asset purchase program was unveiled in the sum of JPY 5 trillion, which by augmenting an already existing JPY 30 trillion credit facility, produced a total plan of JPY 35 trillion.  The projected APP was subsequently increased to 40 trillion yen in March 2011, 50 trillion yen in August 2011, JPY 55 trillion in October 2011, JPY 65 trillion in February 2012, and JPY 70 trillion in April 2012.  The easing in April was the last APP policy shift before today’s announcement and also included a change in the composition of the program by raising the JGB portion by 10 trillion yen but trimming the credit facility, also known as the fixed-rate funds-supplying operation against pooled collateral, to JPY 25 trillion from its prior size of JPY 30 trillion.

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



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