BOJ opts for limited stimulus expansion

The BOJ's headquarters (above) in Tokyo. Mr Kuroda (left) and his team enlarged a programme of buying exchange- traded funds and expanded a US dollar-lending facility, but did not raise the target for the monetary base.
The BOJ's headquarters (above) in Tokyo.PHOTO: AGENCE FRANCE-PRESSE
The BOJ's headquarters (above) in Tokyo. Mr Kuroda (left) and his team enlarged a programme of buying exchange- traded funds and expanded a US dollar-lending facility, but did not raise the target for the monetary base.
Mr Kuroda (above) and his team enlarged a programme of buying exchange- traded funds and expanded a US dollar-lending facility, but did not raise the target for the monetary base.PHOTO: REUTERS

Japan's central bank keeps interest rate unchanged and will review policy framework

TOKYO • The Bank of Japan (BOJ) kept its key monetary tools unchanged, and will mount a comprehensive review of its policy framework due to "considerable uncertainty" about the outlook for inflation, which has consistently underperformed the central bank's forecasts.

The yen jumped in response.

Governor Haruhiko Kuroda and his team did enlarge a programme of buying exchange-traded funds by 2.7 trillion yen (S$35.4 billion) a year, in a move to shore up confidence in the light of post-Brexit volatility in financial markets and a slowdown in emerging markets.

A US dollar-lending facility was also expanded, the BOJ said in a statement yesterday. Mr Kuroda reiterated that further easing will be done if needed and said the central bank has not hit a policy limit.

Decisions to keep the policy interest rate unchanged and forgo raising the target for the monetary base followed increasing expressions of concern by banks and bond market participants about the impact of the BOJ's massive easing.

In an unexpected move, the bank said it will conduct a "comprehensive assessment" at the next meeting, on Sept 20-21, of the effectiveness of the policies taken since Mr Kuroda took charge in 2013. The review will not affect the inflation target.

"Achieving the 2 per cent price stability goal at the earliest possible time is a commitment the central bank has maintained since our joint statement with the government in January 2013, and we have no intention at all of changing this," he said.

By taking some action yesterday, Mr Kuroda, 71, offers support for Prime Minister Shinzo Abe, who two days ago unveiled a 28 trillion yen fiscal stimulus package that will now bear the main burden for stoking expectations for growth and inflation.

The BOJ had come under increasing pressure from government officials to make a move that dovetailed with its own package.

"Since expectations were so high, they couldn't do nothing," said Mr Martin Schulz, a senior economist at Fujitsu Research Institute. "But, on the other hand, they don't want to be in the corner of directly financing government debt. So they focused on private assets, not government assets."

The central bank kept its annual target for expanding the monetary base at 80 trillion yen, done mainly through an equivalent increase in government bond holdings.

It also left untouched the minus 0.1 per cent rate for a portion of commercial banks' reserves. The dollar-lending programme was expanded to US$24 billion (S$32.4 billion) to support Japanese companies and financial institutions.

The limited move by the BOJ boosted the yen, which was up 1.3 per cent at 103.86 as of yesterday evening. The Topix index of stocks fell, then advanced with a rally in the shares of banks - which had complained about the BOJ's negative rate policy harming their earnings. The gauge ended up 1.2 per cent.

Meanwhile, Japan's Government Pension Investment Fund (GPIF), the world's biggest, posted the worst annual performance since the global financial crisis, with losses exacerbated by unfavourable currency moves and a foray into equity markets.

The US$1.3 trillion GPIF lost 3.8 per cent in the year to March 31, the retirement manager said yesterday. That is the biggest drop since the fiscal year to March 31, 2009.

GPIF lost 10.8 per cent on domestic equities and 9.6 per cent on shares in other markets, while Japanese bonds handed the fund a 4.1 per cent gain.

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A version of this article appeared in the print edition of The Straits Times on July 30, 2016, with the headline 'BOJ opts for limited stimulus expansion'. Print Edition | Subscribe