Monday, February 17, 2014

BOJ holds QE target, doubles bank and growth facilities

    Japan's central bank maintained its policy stance but extended and doubled the size of its bank lending and growth-supporting facilities while it repeated that it would continue with quantitative and qualitative monetary easing for as long as necessary to reach its 2 percent inflation target.
    The Bank of Japan (BOJ) embarked on an aggressive easing campaign last April to rid the country of some 15 years of deflation by doubling the country's monetary base by an annual 60-70 trillion through the purchase of Japanese government bonds, exchange traded funds (ETDFs) and real estate investment trust along with commercial paper and corporate bonds.
    The BOJ reiterated its description of Japan's economic recovery as moderate with the outlook for continued moderate growth affected by "the front-loaded increase and subsequent decline in demand prior to and after the consumption tax hike" in April.
   Excluding the impact of the tax rise, the BOJ said consumer price inflation was likely to be around 1.25 percent for some time.
    Japan's inflation rate has been accelerating since June, following 12 consecutive months of declining prices, with inflation in December rising to 1.6 percent from November's 1.4 percent.
    The BOJ's lending facility aimed at stimulating bank leading and another facility aimed at supporting economic growth were due to expire next month and the BOJ's policy board extended the life of these facilities by another year and expanded them.
    Under the bank lending facility, financial institutions will be able to borrow funds from the BOJ up to twice as much as the net increase in banks' lending. Under the growth supporting facility, banks' maximum provision of funds was doubled to 7.0 trillion yen from 3.5 trillion, with financial institutions able to borrow funds at a fixed rate of 0.1 percent per year for four years instead of 1-3 years.
    "The Bank expects that these enhancements will further promote financial institutions' actions as well as stimulate firms' and households' demand for credit, with a view to encouraging banks' lending and strengthening the foundations for economic growth," the BOJ said.
    In addition, the BOJ extended its operations to support financial institutions in the areas that were affected by the 2011 earthquake and tsunami.
    Japan's Gross Domestic Product expanded by a lower-than-expected 0.3 percent in the fourth quarter of 2013 from the third quarter, renewing speculation that the central bank may ease its policy stance even further to help compensate for the expected negative impact from the tax rise in April.

1 comment:

  1. 1. It won't work.
    2. It'll produce the exact opposite of the desired results.
    3. They will blame free market for it. :-)