BOJ Speeds Up Easing, Expands Asset Purchases After ECB And FED
The BOJ accelerated the pace of monetary easing by doubling the size of asset purchases, in addition to leaving the uncollateralized overnight call rate at around 0 to 0.1%. Slowdown in global economic growth and recent tensions between China and Japan over territorial dispute are expected to delay Japan’s recovery as exports growth would be affected. According to the central bank, the move is expected to 'help ensure that Japan's economy resumes a sustainable growth path with price stability'. The move came in earlier than market expectations, sending Japanese yen lower, and Nikkei stock index and cash bonds higher.
Voted unanimously, the BOJ announced to raise the total size of the asset purchase program by +10 trillion yen to 80 trillion yen. The increase would be evenly allocated to treasury discount bills (T-Bills) and Japanese government bonds (JGBs). The increased purchases of T-Bills and JGBs will be completed by around end-June 2013 and around end-2013, respectively. Meanwhile, to facilitate purchases, the central bank decided to remove the minimum bidding yield (currently 0.1% per annum) for the outright purchases of JGBs and corporate bonds.
The market had anticipated the BOJ to implement further easing in October. Therefore, the move came in earlier than anticipated, signaling the central bank’s concerns over the country’s economic outlook. At the post-meeting statement, the BOJ acknowledged that the momentum of recovery has moderated since the second quarter of the year as a result of deceleration of overseas economies. It stated that 'the pick-up in economic activity has come to a pause', compared with the reference in the last meeting that that the economy was starting 'to pick up moderately on robust domestic demand'. The BOJ also noted that the country is facing 'the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability'.
Japanese yen soared to a 7-month dollar after the Fed announced QE3 last week. Strength in the yen has been a headache to the country’s export-dependent economy. This move, made after the ECB’s announcement of the new asset purchase program and the Fed’s QE, is expected to soothe the pressure of yen’s strength, at least in the near-term.