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BOJ Surprisingly Adds Stimulus Print E-mail
Special Reports | Written by | Feb 14 12 07:27 GMT

BOJ Surprisingly Adds Stimulus

The BOJ surprisingly expanded its asset purchase program by +10 trillion yen today, sending the total fund size to around 65 trillion yen. At the same time, policymakers unanimously voted to keep the uncollateralized overnight call rate at 0.-0.1%. The unexpected move aimed to stimulate the country's economy which contracted an annualized -2.3% in 4Q11. Japanese yen will likely be little affected by the move.

At the policy statement, the central bank stated that the country's economic activity has been 'more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen'. The economic outlook remained highly uncertain due to 'the prospects and outcomes of the European debt problem, the supply and demand balance of electricity and the effects of the yen's appreciation'. Headline CPI in Japan dipped -0.2% y/y in December, following a -0.5% drop a month ago. Although deflation eased mildly in December, the trend remained worrisome. Core inflation was flat in December but was slightly lower on annual basis.

In light of the current market conditions, the BOJ believed it's necessary to further support financial developments and ensure the economy recovery. Therefore, it decided to further enhance accommodative measures. The central bank pledged to pursue powerful monetary easing and engage in efforts to support strengthening the foundations for Japan's economic growth.

Addition of the 10 trillion yen to the asset purchase program will go to buying of Japanese government bonds. It's intended that the increased purchases will be completed by around the end of 2012.

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