At the end of the two days meeting, the Bank of Japan’s Policy Board surprised the market by announcing a further easing of monetary conditions. The Stimulating Bank Lending Facility, which was set to expire in June 2014, will be extended by 1 year. Under this programme, financial institutions may borrow from the BoJ, twice as much as the increase in their net lending (it used be equivalent to the increase in net lending) at a fixed rate of 0.1% for four years (instead of 1-3 years at present). The BoJ estimate that the amount outstanding under this facility could reach JPY 30 trillion (or 6.3% of GDP). This might be too optimistic. Before today’s decision, the Bank estimated that the programme would reach JPY15 trillion, but so far only JPY 5 trillion has been offered through this programme.
In addition, the Growth-Supporting Funding Facility will be prolonged by 1 year, from June 2014. Under this programme, loans will be made available for investments that contribute to strengthening the foundations for economic growth. Loans are at a fixed rate of 0.1% per annum for up to four years. The maximum amount of the programme will be doubled from JPY 3.5 trillion to JPY 7 trillion (or 1.5% of GDP), and the maximum amount to each financial institution will be increased from JPY 150 billion to JPY 1 trillion. The Fund is already close to its initial JPY 3.5 trillion ceiling.
Furthermore, the Funds-Supplying Operation to the disaster areas affected by the 2011 Tohoku Earthquake will be extended by 1 year.
Despite yesterday’s disappointing GDP data for Q4 2013, the Board left its assessment concerning the Japanese economyunchanged from the January statement. GDP growth came in at only 0.3% well below market expectations of 0.7%. The Bank repeated that the economy continued to recover moderately, partly stimulated by households advancing their purchases ahead of the three-point VAT hike in April.
BY Raymond VAN DER PUTTEN