Bank of Japan Introduces Quantitative Easing; Rates Unchanged


At the Monetary Policy Meeting held in April 4th, the Policy Board of the Bank of Japan decided upon the introduction of "quantitative and qualitative monetary easing". This follows the Bank's goal to achieve the price stability target of 2 percent in terms of the year-on-year rate of CPI at the earliest possible time.

Extract from the Statement on Monetary Policy:

In order to achieve inflation goals, the Bank will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases. 
 
With a view to pursuing quantitative monetary easing, the main operating target for money market operations is changed from the uncollateralized overnight call rate to the monetary base. Specifically, the Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.
 
With a view to encouraging a further decline in interest rates across the yield curve, the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 50 trillion yen.
 
With a view to lowering risk premia of asset prices, the Bank will purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of 1 trillion yen and 30 billion yen respectively
 
The Bank will continue with the quantitative and qualitative monetary easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.
 
Accompanied by the quantitative and qualitative monetary easing, the Asset Purchase Program will be terminated. The purchases of JGBs conducted for facilitating money market operations, including the amount outstanding of JGBs already purchased, will be absorbed into the aforementioned JGB purchases. 
 
The quantitative and qualitative monetary easing, decided by the Bank in this meeting, will underpin the Bank's commitment, and is expected not only to work through such transmission channels like longer-term interest rates and asset prices but also to drastically change the expectations of markets and economic entities. These effects will support the positive movements that have started to appear in economic activity and financial markets, contribute to a further pick-up in inflation expectations that appear to have risen, and lead Japan's economy to overcome deflation that has lasted for nearly 15 years. 

BoJ | Nuno Fontes | nuno@tradingeconomics.com
4/4/2013 9:01:41 AM