JAKARTA (TheInsiderStories) – Bank of Japan (BoJ) kept the monetary policy steady at -0.1 percent, signaling that it has taken enough steps to support the economic growth for now, said the governor, Haruhiko Kuroda, on Tuesday (05/16). He also sees the interest rates would likely remain ultra low into 2023 and warned that the pandemic could end up having a longer-than-expected impact on the economy.
“I do feel were a long way from a situation where we can raise the rates,” he told media during a press conference by adding that it would be difficult to move before the Federal Reserve would keep rates low through 2022.
BoJ now estimates the size of its overall package measures at JPY110 trillion (US$1.02 trillion), up from initial planned worth of JPY75 trillion. Its two lending programs are worth JPY90 trillion, with corporate bond and commercial paper buying making up the rest.
“We won’t hesitate to take additional easing steps as needed. That means we are ready to expand our lending facilities if necessary. We won’t hesitate to take additional monetary easing steps based on our three pillars. Options include an expansion of our special programmes, cuts in our yield targets, and an expansion of our ETF purchases,” said the governor.
Given uncertainty on how the pandemic could affect the Japanese economy and markets, the central bank may need to ponder new measures and will respond flexibly. On the inflation targets, Kuroda said, the Bank will stick to its targets at 2 percent.
The board members also agreed that Japan’ economy is expected to improve in the somewhat long run as the impact from the pandemic subsides.
“Our view on the economic outlook hasn’t changed much since April. But there is strong uncertainty on the outlook. If a second wave of inflections occurs in advanced nations, that could lead to lockdowns and other measures again, which will have a negative impact on the economies,” he stated.
For the long-term targets, the central bank will purchase a necessary amount of Japanese government bonds (JGB) without setting an upper limit so that 10-year JGB yields will remain at around zero percent. He said, the Bank will actively purchase exchange-traded funds and Japan real estate investment trusts for the time being so that their amounts outstanding will increase at annual paces with the upper limit of about JPY12 trillion and about JPY180 billion, respectively.
“The Bank will purchase these assets so that their amounts outstanding will increase at annual paces of about 6 trillion Yen and about 90 billion Yen, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the Bank may increase or decrease the amount of purchases depending on market conditions,” said Kuroda.
As for commercial paper and corporate bonds, the Bank will maintain their amounts outstanding at about 2 trillion yen and about 3 trillion yen, respectively. In addition, until the end of March 2021, it will conduct additional purchases with the upper limit of the amounts outstanding of JPY7.5 trillion for each asset.
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