BOJ pledges 76 trn yen to boost growth

Bank expands asset-purchase fund by 10 tn yen but keeps lending programme unchanged at 25 tn yen

The Bank of Japan expanded its asset-purchase programme for the third time in four months, and will reconsider its objectives for inflation as incoming Prime Minister Shinzo Abe urges more action to end price declines.

The central bank expanded its asset-purchase fund to 76 trillion yen ($906 billion) from 66 trillion yen, according to a statement released in Tokyo on Thursday. The bank kept its credit lending programme unchanged at 25 trillion yen.

The expanded purchases failed to halt gains in the yen, which reversed three days of declines on Thursday as investors sought a haven amid concerns at a stalemate in US Budget talks. Abe, whose party swept to victory in this week’s election, will have a chance to reshape the BOJ early next year when the terms of Governor Masaaki Shirakawa and his two deputies expire. He’s pressing for a two per cent inflation target, compared with an existing one per cent goal.

 

FUTURE FRAMEWORK
The Bank of Japan expanded its asset-purchase programme for the third time in four months, and said it would reconsider its objectives for inflation

76 trn yen ($906 bn) Asset-purchase fund expanded from 66 trillion yen

25 trn yen Credit lending programme kept unchanged 

1.8 trn yen Monthly purchases of government bonds remain unchanged

0-0.1% Key interest rate kept unchanged

• Bank board to discuss “medium- to long-term price stability” at its next meeting on January 21-22
• Incoming PM Shinzo Abe is pressing for a 2 per cent inflation target, compared with an existing 1 per cent goal which the bank had adopted in February
• The central bank has expanded its asset purchase programme five times this year 
• It also unveiled details of its “unlimited” lending programme. Scheduled to start in June 2013 for about 15 months, the fund is expected to disburse more than 15 trillion yen

“The BOJ showed caution by failing to respond to Abe’s request immediately,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “The bank has been clear that it can’t beat deflation on its own. It’s still unclear how it will respond to the government’s requests.”

The yen was up 0.6 per cent at 83.90 per dollar as of 4:54 pm. in Tokyo. Investors may have wanted more details on the inflation target, said Masafumi Yamamoto, Tokyo-based chief foreign-exchange strategist at Barclays Plc. The Nikkei 225 stock Average closed down 1.2 per cent.

“Today’s action will have little impact on economic activity in the next quarter as demand to borrow funds provided by the central bank remains weak,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd and a former BOJ official.

The BOJ board will discuss “medium- to long-term price stability” at its next meeting on January 21-22, the statement said, indicating that the bank may consider revising its inflation goal. Shirakawa has asked BOJ staff to examine “issues for discussion” and report back to the board, the statement said.

Abe welcomed the bank’s decision on Thursday, saying at a Liberal Democratic Party policy meeting that his campaign pledges are being realised “one-by-one.”

Shirakawa told reporters on Thursday that Abe’s request for a higher price goal was one factor behind the decision to discuss inflation at the next policy meeting, adding that he “strongly expects” the government to play a role in defeating deflation.

Seventeen of 21 economists surveyed by Bloomberg News expected further easing measures on Thursday with the rest forecasting action next month.

Japan’s economy shrank an annualised 3.5 per cent last quarter after a 0.1 per cent decline in the previous three-month period, meeting the textbook definition of a recession. The median estimate of analysts surveyed by Bloomberg News is for a 0.5 per cent contraction this quarter and a 1.4 per cent expansion in the first three months of 2013.

The central bank adopted its 1 per cent price goal in February, and has expanded its asset purchase programme five times this year. The BOJ on Thursday kept its key interest rate unchanged between zero and 0.1 per cent and monthly purchases of government bonds at 1.8 trillion yen. The Abe-led coalition secured a two-third majority in the lower house of parliament. Abe said on December 17 his mission is to stimulate a recovery, end more than a decade of deflation and correct the strong currency.

“In the election I repeatedly said I wanted an accord between the government and the BOJ including an inflation target of 2 per cent,” Abe told Shirakawa in a meeting on December 18.

“One reason for the LDP’s big win lies in their emphasis on further monetary easing,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co and a former central bank official. “The BOJ can’t ignore the voice of voters. The chance for back-to-back stimulus in December and January is rising.”

Analysts including Bank of America Merrill Lynch’s Masayuki Kichikawa say it’s hard for the BOJ to resist political pressure especially before a leadership change early in 2013.

Shirakawa will step down on April 8, with the two deputy governors terms ending on March 19.

At on Thursday’s meeting, board member Koji Ishida proposed cutting the interest rate paid to commercial banks on their deposits at the BOJ to zero from 0.1 per cent, the statement showed. The proposal was voted down by the other eight board members.

The BOJ also unveiled details of its “unlimited” lending programme. The fund is scheduled to start in June 2013 for about 15 months, and is expected to disburse more than 15 trillion yen, the bank said in a statement. Shirakawa told reporters that the programme could help to weaken the yen.

The central bank said in a separate statement that it extended its currency-swap agreements with five major central banks including the Federal Reserve through February 1, 2014.

Machinery orders, an indicator of capital spending, rose for the first time in three months in October while factory output rose the most this year. Sentiment of big manufacturers is forecast to rise in the next quarter after falling to an almost three year low in December, according to the central bank’s quarterly survey last week. Exports, a key driver of growth, fell for a sixth month in November, a government report showed yesterday.

“The Japanese public and companies are trying hard in a grim situation,” said Akio Toyoda, the chairman of Japan Automobile Manufacturers Association. “We don’t have time to waste as urgent matters such as the strong yen, deflation, social security and diplomatic problems are piling up” Toyoda, also president of Toyota Motor Corp, said in a statement on the JAMA website on December 17.

A leading indicator for China rose at a slower pace in November, indicating that the nation’s economic rebound remains fragile, The Conference Board said on Thursday. New Zealand reported a slower-than-estimated 0.2 per cent economic expansion in the third quarter from the second.

In the US, sales of previously owned homes probably rose in November to a three-year high, according to economists’ median forecast before a report from the National Association of Realtors on Thursday. US economic growth for last quarter may be revised up to 2.8 per cent from 2.7 per cent, according to the median forecast in a Bloomberg survey.

The Bloomberg Consumer Comfort Index will give the latest reading on US confidence, while a measure of sentiment in the euro region is also due on Thursday. Brazil releases an inflation report, while the UK and Italy give retail-sales numbers.