Returning To ZIRP, BoJ Slashed Policy Rate To 0.1%.

In less than 2 months, the Bank of Japan cut the overnight lending rate twice by 20 bps to 0.1% after the Fed announced a almost-zero policy at 0-0.25% Tuesday. The rate cut decision was made with 7-1 votes and the central bank also planned to buy commercial papers to help corporations raise capitals.

In the post-meeting statement, BoJ particularly concerns about the weak domestic economic condition and sky-high Japanese yen which damped exports. Inflation, which stands at 2% currently, is expected to fall further due to declines in oil and food prices, as well as deterioration in global economic condition.

While anticipating it will take a long time for economy to recover to a satisfactory level, the central bank will strive to 'facilitate the return of Japan's economy to s sustainable growth path with price stability'. In this regard, BOJ also announced additional measures in the money market which includes outright purchase of JGB and facilitation of corporate financing.

In measures regarding outright purchase of JGBs, the central bank will increase the amount of purchase to 16.8 trillion yen per year from 14.4 trillion yen per year. Also, BOJ will add 30-year bonds, floating-rate bond and inflation-indexed bonds to the list of eligible JGBs as well as introduce a scheme to buy JGBs from specific maturity segments.

Concerning facilitation of corporate financing, the Bank of Japan unanimously agreed on the 'Special Funds-Supplying Operations to Facilitate Corporate Financing' which will start operation on Jan 8, 2009. Moreover, outright purchase of commercial papers will be adopted temporarily in order to finance companies.