Bank of Japan to expand stimulus again as pandemic pain deepens

https://www.reuters.com/article/us-japan-economy-boj/bank-of-japan-to-expand-stimulus-again-as-pandemic-pain-deepens-idUSKCN22902K

TOKYO (Reuters) - The Bank of Japan is expected to expand monetary stimulus on Monday for the second straight month to ease corporate funding strains and finance huge government spending aimed at combating the deepening economic fallout from the coronavirus pandemic.

Such a move would put the BOJ in line with other major central banks that have unleashed unprecedented amounts of monetary support amid the health crisis.

Sources have told Reuters the BOJ is likely to take further steps to ease funding strains for companies whose sales have collapsed, such as boosting purchases of corporate bonds and commercial debt.

The central bank may also clarify its commitment to buy unlimited amounts of government bonds by scrapping loose guidance to buy them at an annual pace of 80 trillion yen ($744 billion) per year, say sources familiar with its thinking.

Removing the guidance will be largely symbolic, they say. The BOJ has only purchased less than 20 trillion yen per year, as the bank’s huge presence in the market allows it to control yields with fewer purchases.

“Still, it’s something the BOJ could contemplate,” one of the sources said. “By showing its resolve to buy bonds aggressively, the BOJ can send a message it is working closely with the government by keeping borrowing costs ultra-low,” the source said, a view echoed by another source.

At the meeting on Monday cut short by a day as a precaution against the spread of the pandemic, the BOJ is widely expected to keep its interest rate targets unchanged.

Under a policy dubbed yield curve control, the BOJ targets short-term interest rates at -0.1% and 10-year bond yields around 0%. It also buys government bonds and risky assets to pump money aggressively into the economy.

FUNDING STRAINS REMAIN

The BOJ’s rate review precedes those this week by the Federal Reserve and the European Central Bank, which have sailed into uncharted territories to keep their economies afloat.

Corporate funding costs have crept up in Japan despite the BOJ’s decision last month to boost risky asset buying and create a loan programme to assist funding of firms hit by the pandemic.

Among the measures taken in March were a pledge for the BOJ to increase purchases of corporate bonds and commercial debt by 2 trillion yen.

The BOJ could further boost the amount of such assets it buys and accept a wider range of assets as collateral from financial institutions, the sources said.

In fresh quarterly estimates also due on Monday, the central bank is set to sharply cut its economic growth forecasts and project inflation to remain distant from its 2% target for three more years.

Japan expanded a state of emergency this month that asks citizens to stay home and businesses to close, adding to woes for an economy already on the cusp of recession.

To ease the pain on the economy, the government boosted its spending package last week to a record $1.1 trillion yen, which will be paid for partly by issuing more bonds - straining Japan’s already tattered finances.

($1 = 107.5000 yen)

https://www.reuters.com/article/us-japan-economy-boj/bank-of-japan-to-expand-stimulus-again-as-pandemic-pain-deepens-idUSKCN22902K

Bank of Japan Ramps Up Stimulus With Pledge for Unlimited Bond Buying

https://finance.yahoo.com/news/bank-japan-ramps-stimulus-pledge-033022947.html

(Bloomberg) – The Bank of Japan removed limits on its purchases of government bonds, joining global counterparts in their unprecedented expansion of monetary stimulus as the coronavirus hammers the world economy.

The central bank also increased its scope for buying corporate bond and commercial paper by raising its ceiling on holdings to 20 trillion yen, according to its statement Monday in Tokyo. The BOJ’s previous guideline on government debt was to increase holdings by around 80 trillion yen ($743 billion) per year.

With the extra measures focused on supporting struggling companies with financing help, the bank kept its short- and long-term interest rate targets unchanged. A return to relative stability in stock markets and reduced concern over the possibility of a sudden strengthening of the yen have given the BOJ some breathing space to leave its main interest rate policy levers untouched.

Additional stimulus was expected by 59% of economists surveyed by Bloomberg. The bank had come under increasing pressure to take more action as the declaration of a nationwide state of emergency this month brought more shutdowns and a growing need for financial support.

The BOJ also likely saw a need to take action before the Fed and the European Central Bank meet later this week, so as not to be seen lagging the bold moves of its peers.

The additional measures announced by Governor Haruhiko Kuroda also show a greater degree of fiscal-monetary policy coordination, with Prime Minister Shinzo Abe unveiling more than $1 trillion in stimulus this month and an accompanying plan to issue more bonds.

“The BOJ must be aggressive as Japan’s virus situation is getting worse,” Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said before today’s decision. “The BOJ will continue to be walking on a tight rope with few tools left.”

With other central banks due to meet, the BOJ didn’t want to appear to be doing “too late, too little,” he added.

For BOJ officials, memories are still fresh of being criticized for failing to act enough during the financial crisis and causing the yen to strengthen, which eventually led to the leadership change that brought Kuroda to the helm in 2013.

Monday’s decision signals that the BOJ’s concern over the pandemic has intensified quickly. Unlimited bond buying was not an ideal option to take, in the view of some officials, as it further narrows bank’s policy choices at a time of heightened uncertainty, people familiar with the matter told Bloomberg earlier this month.

BOJ Has Perfect Cover to Ditch 80 Trillion Yen Bond Purchase Aim

Still, it remains in question how Monday’s decision will actually change the BOJ’s bond purchases. The current yield curve control program doesn’t require a surge in purchases as long as 10-year bond yields stay around 0%.

https://finance.yahoo.com/news/bank-japan-ramps-stimulus-pledge-033022947.html