People walk past the Bank of Japan headquarters as cherry blossoms are in full bloom in Tokyo April 10, 2012.
Credit: Reuters/Yuriko Nakao
TOKYO |
(Reuters) - The Bank of Japan, facing mounting government pressure, eased monetary policy further on Friday by boosting asset purchases by 10 trillion yen ($124 billion), more than markets had expected, and pledging to buy longer-term government bonds in a show of resolve to pull the economy out of deflation.
But in what might serve to cool expectations of further aggressive easing, the central bank said consumer inflation may approach its 1 percent target as early as in 2014 as the world's third-largest economy shifts towards a recovery.
The central bank surprised markets by boosting government bond purchases under its asset-buying scheme by 10 trillion yen, double the usual amount, and increasing buying of riskier assets: exchange-traded funds (ETFs) and real-estate linked funds (REITs).
The increase in ETF purchases buoyed Tokyo share prices .N225, while the yen fell against the dollar, as many domestic players had bet on a more cautious 5 trillion yen move. The currency later recovered all of its initial losses.
"The BOJ did a little bit more than we had expected, so their decision comes as a positive surprise. We didn't expect they would increase purchases of ETFs and REITs," said Masamichi Adachi, senior economist at JPMmorgan Securities in Tokyo.
"The bank is trying to send a message that they are supporting the market and the economic recovery, just like they did in February. It is a step in the right direction and we think the BOJ needs to do even more to boost the economy."
The second easing in just over two months was widely seen as a response to political pressure for greater efforts to end deflation that has dogged Japan for over a decade, depressing consumption and business investment.
Borrowing costs are already low, with two-year bond yields trading at BOJ's overnight rate target ceiling of 0.1 percent, so pumping in more money is seen as a largely symbolic move which will do little to directly spur the economy.
"The leopard doesn't change its spots. It (the BOJ) doesn't view monetary accommodation as a cure capable of reversing Japan's deflation," said Tim Condon, chief Asia economist at ING in Singapore.
"They seem motivated by politics and political pressure in these last couple of moves ... so I think they will do the minimum that they feel they are forced to do."
As expected, the BOJ also said it would extend the duration of government bonds targeted under its asset-buying scheme to three years from the current two years.
While Friday's move adds to the BOJ's surprise easing in February, some analysts were not too excited, saying the BOJ has not actually expanded its balance sheet, nor has it committed to accelerate asset purchases that much.
ASSET BUYING
With interest rates virtually at zero, the BOJ has created as its main policy tool a pool of funds to buy government bonds with up to two years until maturity, as well as corporate debt, ETFs and REITs.
The BOJ helped weaken the yen and lift stocks in February by boosting asset purchases by 10 trillion yen and setting the 1 percent inflation target. But lawmakers have continued to pile pressure on the BOJ with prices barely rising.
While boosting the pool for asset purchases by 10 trillion yen, the central bank slashed by 5 trillion yen another fund for fixed-rate market operations because it has been having trouble force-feeding cash to markets already awash with liquidity.
As a result, the combined amount of the asset-buying and loan program was boosted by 5 trillion yen to 70 trillion yen.
The BOJ also extended the deadline for meeting the new asset buying target by six months. The year-end target remains at 65 trillion yen, and the new 70 trillion yen target will be only be met in June 2013, a sign that the pace of government bond purchases will not change that much.
"I find these moves disappointing. Yes, the BoJ will own more JGBs by mid 2013. Indeed they will own more JGBs by end of 2012. However, the total size of the asset purchase program has not increased by the end of this year ... This is the disappointing part for me," said Westpac chief currency strategist Robert Rennie in Sydney.
LOOKING UP
In a sign of the economy's resilience, data earlier in the day showed factory output rose in March at the fastest pace in three months as exports picked up. But the 1 percent rise undershot expectations and companies expected to cut production next month.
Consumer prices rose just 0.2 percent in March from a year earlier in a sign Japan still had a long way to achieve the BOJ's 1 percent target, which the central bank believes is consistent with its idea of price stability.
Because of the impact on the yen and the currency's importance for Japan's export machine, analysts say that the BOJ has found itself locked in a policy easing competition with the U.S. Federal Reserve and, to a lesser extent, the European Central Bank.
The Fed stood pat on policy earlier this week, but Chairman Ben Bernanke said the central bank would not hesitate to launch another round of government bond buying if the U.S. economy were to weaken.
In such a scenario, the yen could rise again, threatening the economic recovery and putting the BOJ under pressure to act, too.
Finance Minister Jun Azumi welcomed Friday's move, describing it as "another bold easing step", but also kept up the pressure by saying he hoped the central bank would continue to take such steps to help the long struggling economy.
($1 = 80.7900 Japanese yen)
(Writing by Leika Kihara and Tomasz Janowski; Editing by Kim Coghill)
No comments:
Post a Comment