13 Feb 2012 23:03 EST DJ BOJ Expands Asset-Purchse Program By Y10T, Revises Wording Of Price Target
TOKYO (Dow Jones)–The Bank of Japan decided Tuesday to expand its asset-purchase program again by Y10 trillion and changed the wording of its price target following political pressure to strengthen its commitment to ending deflation.
The central bank’s policy board said it will boost the size of its asset purchase program including low-cost loans–the main tool for credit easing amid near zero interest rates–to Y65 trillion from Y55 trillion.
Only one out of the 11 analysts polled by Dow Jones Newswires had predicted the BOJ to ease. Most BOJ watchers had said that while there were concerns over the impact of the strong yen and the European debt crisis, neither financial nor economic conditions had worsened to levels that warrant immediate further action.
The BOJ policy board also revised the wording of its “understanding of price stability,” saying now it has set a “price stability goal” of 2% or lower in the core consumer price index in the medium- to long-term and a goal of 1% growth for the time being.
The bank had come under criticism that its definition of price stability, the goal it seeks to achieve in its fight against deflation, was too convoluted and vague.
Faced with a prolonged deflation, politicians have stepped up their calls on the BOJ to take fresh action, with some threatening to revise legislation to strip away the central bank’s independence from the government.
The bank’s policy board voted unanimously at the end of a two-day meeting to leave its policy rate–the unsecured overnight call loan rate–in a 0.0%-0.1% range.
The dollar rose against the yen on the BOJ action, climbing to Y77.87 from Y77.59 before the announcement, the highest since Jan. 26.
The additional easing “was certainly a surprise to the currency market,” said UBS senior dealer Hirotsugu Inoue.
Additional easing by a central bank will increase the supply of money in the economy and therefore tend to push down the currency’s level.
The Japanese government bond market rallied on the news with the benchmark 10-year JGB bond futures contract rising to 142.68 from 142.37, pushing the yield down to 0.960%.
The central bank also maintained the size of its asset purchase program–the main tool for credit easing amid near zero interest rates–at Y55 trillion.
Market participants will now focus on Gov. Masaaki Shirakawa’s comments at a press conference from 0630 GMT, to seek an explanation for the move.
-By Megumi Fujikawa and Tatsuo Ito, Dow Jones Newswires; 813-6269-2786; [email protected]
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