JAKARTA (TheInsiderStories) – At today’ meeting, held earlier than previously scheduled, the Bank of Japan (BoJ) announced additional measures to mitigate the economic impact of the coronavirus. The central said it will “aggressively” buy exchange-traded funds at an annual pace of around JPY12 trillion (US$112.66 billion), double from the current pace,
The move joining with other global central banks in combating the widening economic fallout from the coronavirus outbreak. The central bank also decided to create a new loan program and zero-rate loans to financial institutions in an effort to boost lending to firms hit by the virus outbreak.
It will also double the pace of purchases for Japanese real estate trust funds JPY180 billion per annum. In a bid to prevent credit markets from freezing up, BoJ will set aside JPY2 trillion for additional purchases of commercial paper and corporate bonds.
Commenting on the new policy, Harumi Taguchi, from IHS Markit rated, although his office had expected the BoJ to strive to stabilize markets and offer sufficient liquidity via market operations and asset purchases, the announced amount of additional purchasing was larger than expected.
The central bank made a bold decision to provide liquidity as much as it currently could, making sure it has limited negative side effects on financial institutions as well as financial markets. The additional liquidity could help companies, which are suffering from the current condition and facing difficulties of daily funding.
He said, the BoJ may need to consider additional easing or extend the period for special fund-supply operations and additional asset purchasing, given that it is unclear how long it would take to contain COVID-19. Fiscal and monetary policies will have only limited effects on driving ample economic activities and stimulus investment until major economies control the pandemic.
While, Japan’ private machinery orders (excluding volatiles) – a leading indicator of capital expenditure (capex) – rose 2.9 percent month on month (MoM) in January, following a 11.9 percent surge in the previous month. The rebound reflected a 4.6 percent rise in orders from the manufacturing sector, offsetting a 1.7 percent drop in orders from the non-manufacturing sector (excluding volatiles) MoM.
Although the January results were better than what IHS Markit had expected, steep increases in orders from some industry groupings are unlikely to be sustainable, and the overall trend of private machinery orders remains weak.
The rapid global spread of COVID-19 and measures to contain it have hurt economic activities, which will likely make companies cautious about capex and suppress machinery orders over the near term, he adds.
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