BOJ Follows Fed to Bolster Stimulus as Growth Falters
The Bank of Japan unexpectedly expanded its asset-purchase fund by 10 trillion yen ($126 billion), seeking to counter an increasing danger of contraction in the world’s third-largest economy.
The BOJ’s program, in which it buys mainly government bonds, was enlarged to 55 trillion yen in a unanimous decision by the board, the bank said in a statement in Tokyo today. A separate fund that extends credit to banks was held at 25 trillion yen.
Japanese stocks jumped and the yen fell after the decision to ease policy, which was forecast by only five of 21 analysts surveyed by Bloomberg News. With today’s move, the BOJ joins counterparts from the Federal Reserve to the European Central Bank in taking steps to address persistent risks to growth five years after the U.S. mortgage meltdown derailed the global economy.
“Further easing is still possible this year because the BOJ is emphasizing uncertainties in its outlook,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo.
The central bank kept its benchmark interest rate between zero and 0.1 percent and monthly bond purchases at 1.8 trillion yen. The BOJ’s main policy tool has been purchasing financial securities ranging from government debt to exchange-traded funds to bolster growth.
The bank downgraded its economic assessment, saying that Japan’s growth has “come to a pause” while overseas economies have moved “somewhat deeper into a deceleration phase.”
Finance Minister Jun Azumi said the scale of today’s easing was “surprising.”
Nikkei Climbs
The yen fell as much as 0.6 percent after the decision before trading at 79.13 against the dollar at 1:39 p.m. in Tokyo. The Nikkei 225 Stock Average rose 1.6 percent and benchmark 10-year bond yields were at 0.805 percent.
Today’s 10 trillion increase is made up of 5 trillion yen of government bonds and 5 trillion yen of treasury bills. The bank removed minimum bidding yields for purchases of government and corporate bonds after the BOJ failed to secure targeted amounts at some of its buying operations. It pushed back the completion of purchases under the asset program to December 2013 from June 2013.
JPMorgan Securities, Credit Suisse Group AG and BNP Paribas expect Japan’s economy to contract this quarter after it slowed to a 0.7 percent annual pace in the three months ended on Jun 30 after expanding 5.3 percent in the January to March period.
Prime Minister Yoshihiko Noda said last week he will have to compile an extra budget to support a recovery from the March 2011 earthquake, even as he is struggling to pass a bill to allow the sale of 38 trillion yen of bonds to fund spending for the rest of this year’s primary budget.
China Dispute
Japan’s weakening recovery faces an added threat from a territorial dispute with China, Japan’s biggest export market. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., halted production at some plants in China while Panasonic Corp. reported damage to a factory. Thousands marched in anti-Japanese protests in dozens of cities yesterday.
Also in Asia today, China said that foreign direct investment fell in August and that the diplomatic spat with Japan will hurt trade relations between the two nations. In the U.K., the Bank of England will release minutes of its Sept. 5-6 meeting, when policy makers left their benchmark interest rate at 0.5 percent and kept an asset-purchase target unchanged.
The U.S. will release data on housing starts and home sales.
Yen's Gain
The yen strengthened to a seven-month high of 77.13 per dollar on Sept. 13, after the Fed announced its plan to buy $40 billion a month of mortgage debt in a third round of quantitative easing. The yen has gained about 47 percent in the past five years, eroding exporters’ profits.
“We are concerned about an increase in the speed of yen appreciation, and our sense of crisis is intensifying,” Akio Toyoda, chairman of the Automobile Manufacturers Association and chief executive officer of Toyota, said Sept. 14. “We strongly hope the government and the BOJ can cooperate closely and act swiftly to correct a historically strong yen level.”
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
BOJ Follows Fed to Bolster Stimulus as Economic Recovery Falters
Tomohiro Ohsumi/Bloomberg
The Bank of Japan headquarters stands in Tokyo, Japan.
The Bank of Japan headquarters stands in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg
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