(Bloomberg) -- The Bank of Japan removed limits on its purchases of government bonds, joining global counterparts in their unprecedented expansion of monetary stimulus as the coronavirus hammers the world economy.
The central bank also increased its scope for buying corporate bond and commercial paper by raising its ceiling on holdings to 20 trillion yen, according to its statement Monday in Tokyo. The BOJ’s previous guideline on government debt was to increase holdings by around 80 trillion yen ($743 billion) per year.
With the extra measures focused on supporting struggling companies with financing help, the bank kept its short- and long-term interest rate targets unchanged. A return to relative stability in stock markets and reduced concern over the possibility of a sudden strengthening of the yen have given the BOJ some breathing space to leave its main interest rate policy levers untouched.
Additional stimulus was expected by 59% of economists surveyed by Bloomberg. The bank had come under increasing pressure to take more action as the declaration of a nationwide state of emergency this month brought more shutdowns and a growing need for financial support.
The BOJ also likely saw a need to take action before the Fed and the European Central Bank meet later this week, so as not to be seen lagging the bold moves of its peers.
The additional measures announced by Governor Haruhiko Kuroda also show a greater degree of fiscal-monetary policy coordination, with Prime Minister Shinzo Abe unveiling more than $1 trillion in stimulus this month and an accompanying plan to issue more bonds.
“The BOJ must be aggressive as Japan’s virus situation is getting worse,” Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said before today’s decision. “The BOJ will continue to be walking on a tight rope with few tools left.”
With other central banks due to meet, the BOJ didn’t want to appear to be doing “too late, too little,” he added.
For BOJ officials, memories are still fresh of being criticized for failing to act enough during the financial crisis and causing the yen to strengthen, which eventually led to the leadership change that brought Kuroda to the helm in 2013.
Monday’s decision signals that the BOJ’s concern over the pandemic has intensified quickly. Unlimited bond buying was not an ideal option to take, in the view of some officials, as it further narrows bank’s policy choices at a time of heightened uncertainty, people familiar with the matter told Bloomberg earlier this month.
BOJ Has Perfect Cover to Ditch 80 Trillion Yen Bond Purchase Aim
Still, it remains in question how Monday’s decision will actually change the BOJ’s bond purchases. The current yield curve control program doesn’t require a surge in purchases as long as 10-year bond yields stay around 0%.
(Updates with economist comment)
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