JAKARTA (TheInsiderStories) – Bank of Japan (BoJ) decided to further enhance monetary easing by purchases of commercial paper (CP) and corporate bonds up to JPY20 trillion (US$186.57 billion), said the central bank today (04/27). With regard to the risk balance, risks to both economic activity and prices are skewed the policymakers also cut the economic growth outlook.
The Bank also wants to strengthening the Special Funds-Supplying Operations to Facilitate Financing in Response to the COVID-19, and further active purchases of Japanese government bonds (JGBs) and treasury discount bills (T-bills).
It said, the maximum amounts outstanding of a single issuer’ CP and corporate bonds to be purchased will be raised substantially from JPY1 trillion to JPY7.5 trillion yen for each asset with maturity of corporate bonds to be purchased will be extended to five years.
The existing amounts outstanding of CP and corporate bonds will be maintained at about JPY2 trillion and JPY3 trillion yen, respectively. The additional purchases will continue until the end of September 2020.
Bank of Japan also expand the range of eligible collateral to private debt in general, including household debt (from JPY8 trillion to JPY23 trillion as of end-March 2020), increase the number of eligible counter parties, and apply a positive interest rate of 0.1 percent to the outstanding balances of current accounts held by financial institutions at the Bank that correspond to the amounts outstanding of loans provided through this operation.
In addition, the central bank will actively purchases of JGBs and T-Bills In a situation where the liquidity in the bond market remains low, the increase in the amount of issuance of JGBs and T-Bills in response to the government’ emergency economic measures will have an impact on the market. The policies be applied from May 16 to June 15 onward.
Bank of Japan will purchase a necessary amount of JGBs without setting an upper limit so that 10-year JGB yields will remain at around zero percent so that their amounts outstanding will increase at annual paces with the upper limit of about JPY12 trillion and JPY180 billion yen, respectively.
The Bank will continue with “quantitative and qualitative monetary easing with Yield Curve Control,” aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. For the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.
BoJ said, Japan’ economy is likely to remain in a severe situation for the time being due to the impact of the spread of the COVID-19 at home and abroad. The annual rate of change in the consumer price index (CPI) is expected to be somewhat weak for the time being, mainly affected by the spread of COVID-19 and the decline in crude oil prices.
It also said, the world third largest economy is likely to improve, supported by accommodative financial conditions and the government’ economic measures, and a projected recovery in production from the decline brought about by the spread of COVID-19.
The year-on-year rate of change in the CPI is likely to increase gradually. It said, the impact of the spread of the virus is assumed to wane on a global basis through the second half of 2020.
“Future developments are extremely unclear, as they could change depending on the timing of the spread of COVID-19 subsiding and on the magnitude of the impact on domestic and overseas economies,” said the policymakers.
Until the spread of COVID-19 subsides, economic activity is likely to remain constrained and thus overseas economies are expected to remain depressed, said BoJ. In this situation, Japan’ exports, including inbound tourism consumption, are likely to remain weak.
For the current fiscal year to March 2021, it now forecasts the economy will shrink 3.0 to 5.0 percent of gross domestic products (GDP), compared with the previous estimate of 0.8 – 1.1 percent of GDP. Its also revised up the forecast for fiscal year to March 2022, to around 2.8 – 3.9 percent of GDP from earlier 1.0 – 1.3 percent of GDP.
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