BoJ Expands Asset Purchases


The Bank of Japan kept its pledge to increase the monetary base at an annual pace of about 80 trillion yen at its December 2015 meeting, but said it would extend the average maturity of government bonds it purchases to 7 to 12 years from 7 to 10 years. Policymakers also established a new programme of buying exchange traded funds (ETFs) at an annual pace of about 300 billion yen in addition to the current program of around 3 trillion yen, starting from April 2016.

The BoJ said it plans to use the new measures to purchase ETFs of stocks issued by firms proactively investing in physical and human capital, starting with purchases of ETFs tracking the JPX-Nikkei Index 400.  The measure is aimed at offsetting the possible market impact from the scheduled sales of stocks it has purchased from banks.
 
Excerpts from the Statement by the Bank of Japan:
 
Overseas economies -- mainly advanced economies -- have continued to grow at a moderate pace, despite the slowdown in emerging economies. In this situation, exports have been picking up, although sluggishness remains in some areas. On the domestic demand side, business fixed investment has been on a moderate increasing trend as corporate profits have continued to improve markedly. Against the background of steady improvement in the employment and income situation, private consumption has been resilient and housing investment has been picking up. Public investment has been on a moderate declining trend, although it remains at a high level. Industrial production has continued to be more or less flat. Meanwhile, business sentiment has generally stayed at a favorable level, although somewhat cautious development have been observed in some areas. Financial conditions are accommodative. On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food) is about 0 percent. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, although some indicators have recently showed relatively weak developments.
 
With regard to the outlook, Japan's economy is expected to continue recovering moderately. The year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices.
 
Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the momentum of economic activity and prices in Europe, and the pace of recovery in the U.S. economy.
 
Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.
 
In pursuing QQE according to the policy mentioned above, it is appropriate to encourage a smoother decline in interest rate across the entire yield curve taking into account developments in the JGB market and the situation in financial institutions’ asset holdings. Moreover, as conversion of firms have become proactive in making investment in physical and human capital, it is desirable that this development will become further widespread. From this perspective, the bank decided to adopt supplementary measures for QQE.

BoJ Expands Asset Purchases


Bank of Japan | Rida Husna | rida@tradingeconomics.com
12/18/2015 9:06:14 AM