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Bank of Japan expands stimulus again as pandemic pain deepens

EconomyApr 27, 2020 02:55AM ET
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© Reuters. A man runs past the Bank of Japan building in Tokyo

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - The Bank of Japan expanded monetary stimulus on Monday and pledged to buy unlimited amount of bonds to keep borrowing costs low as the government tries to spend its way out of the deepening economic pain from the coronavirus pandemic.

The move puts the BOJ in line with other major central banks that have unleashed unprecedented amounts of monetary support as the health crisis stokes fears of a deep global recession.

The central bank also sharply cut its economic forecast and projected inflation would fall well short of its 2% target for three more years, suggesting its near-term focus will be to battle the crisis.

"The spread of the coronavirus at home and abroad is inflicting a severe impact on Japan's economy," BOJ Governor Haruhiko Kuroda told a news conference after the policy meeting.

"The achievement of the BOJ's 2% inflation target ... will take time. The outlook for prices is highly uncertain," he added.

To ease corporate funding strains, the BOJ said, it will boost by three-fold the maximum amount of corporate bonds and commercial debt it buys to 20 trillion yen ($186 billion).

The central bank also clarified its commitment to buy unlimited amounts of government bonds by scrapping loose guidance to buy them at an annual pace of 80 trillion yen.

"The BOJ will purchase necessary amounts of government bonds without setting an upper limit" to keep long-term interest rates around its 0% target, the statement said.

The central bank said it would buy government bonds and short-term securities "actively" for the time being to keep markets stable as the government issues more bonds to pay for its huge stimulus package.

"For the BOJ, the removal of the bond-buying target is like killing two birds with one stone," as it can ramp up bond buying now and whittle it down later if it wants to end ultra-loose policy, said Toru Suehiro, senior market economist at Mizuho Securities.

"With today's move, the BOJ can stand pat on monetary policy for the time being void of a disruptive market move," he said.

At the meeting on Monday, cut short by a day as a precaution against the spread of the pandemic, the BOJ kept its interest rate targets unchanged, as had been widely expected.

The central bank, however, offered to pay a 0.1% interest to financial institutions that tap its new loan programme to combat the pandemic - a move aimed at encouraging commercial banks to boost lending to cash-strapped firms.

Under a policy dubbed yield curve control, the BOJ targets short-term interest rates at -0.1% and 10-year bond yields around 0%. It also buys government bonds and risky assets to pump money aggressively into the economy.

POLICY MIX WELCOMED

The BOJ's rate review precedes those this week by the Federal Reserve and the European Central Bank, which have sailed into uncharted territories to keep their economies afloat.

Corporate funding costs have crept up in Japan despite the BOJ's decision last month to boost buying of risky assets, including corporate bonds and commercial debt, and create a loan programme to assist funding of firms hit by the pandemic.

Removing the guidance on its bond buying is largely a symbolic move. The BOJ has only purchased less than 20 trillion yen per year, as the bank's huge presence in the market allows it to control yields with fewer purchases.

Still, the government welcome the move as a sign the central bank would help keep borrowing costs low to pay for the huge cost of battling the pandemic.

"Today's decision would enhance the effect of a policy mix," between the government and the central bank, Economy Minister Yasutoshi Nishimura told reporters after attending the BOJ's meeting.

Japan expanded a state of emergency this month that asks citizens to stay home and businesses to close, adding to woes for an economy already on the cusp of recession.

To ease the pain on the economy, the government boosted its spending package last week to a record $1.1 trillion yen, which will be paid for partly by issuing more bonds - straining Japan's already tattered finances.

Bank of Japan expands stimulus again as pandemic pain deepens
 

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Comments (4)
Adamo Nals
Adamo Nals Apr 26, 2020 11:01PM ET
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What all of you don’t understand and I’m from the United States is you just can’t continually pump trillions of dollars printed money money that’s on paper before the whole system explodes. And if you think that 35% down was bad in the market that was just an appetizer. The world is going into a depression. The markets are irrationally exuberant because it’s in the third phase of the selloff in a bear market. Be warned that this market across the globe will collapse in the next few weeks to months possibly at most
Chris Sundo
Chris Sundo Apr 26, 2020 10:08PM ET
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I mean that the repeating pattern of stimulus is to a vast extent excessive and inappropriately will lead to abuse. The gov't should rather identify ppl by their last year's income tax returns, go out into the community and meet the people one by one and make assessments upon meeting and corroborating info per tax return to REALITY.
Chris Sundo
Chris Sundo Apr 26, 2020 10:05PM ET
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The censoring of comments for Japanese related articles is severe! I stated common sense and the site here blocked it out. Definitely excessively vain folks those related to Japan and China. And not surprising, both those countries must have very impressionable populations since both those populations seem to accept whatever non-sense their leaders concoct.
Buzzy Jefferson
Buzzy Jefferson Apr 26, 2020 10:05PM ET
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yep. extremely fragile and paranoid censors for the Chinese and Japanese folks. I would have thought they could handle reality and logic better. Bummer for our friends in Japan for sure.
brett fry
brett fry Apr 26, 2020 10:05PM ET
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Buzzy Jefferson so you think there’s a guy sitting in Japan censoring these comments!?
Buzzy Jefferson
Buzzy Jefferson Apr 26, 2020 10:05PM ET
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brett fry  - no. Dror Efrat is the founder and CEO of this site. He has done a very good job of hiding info about himself on the net. I do know that this site is very dependent on Chinese advertising, and therefore is very careful not to allow posts that upset their emperor. The censoring algorithms on this site are adjusted constantly.
Chris Sundo
Chris Sundo Apr 26, 2020 10:02PM ET
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Again, again and again. Until future generations are burdened forever.  -- Let's face it, people can be identified by their income bracket, and the rest have savings, net worth and really don't need more than a basic upkeep of daily meals. So what is holding our incompetent governments back from identifying people by last year's income tax returns and hand out support based on that to start while heading out into the suburbs to touch base with people so they all can become counted, similar to when Jesus was borne. Once the governments make such contact with reality the hole society can be supported much better and equitably. In Canada we see multi-millionaires with million dollar bank accounts apply for a biz loan that foregives 25% of its balance with very limited application hurdles to pass.
 
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