Bank of Japan Expands Stimulus

Japan’s central bank decided to launch another round of quantitative easing at its October meeting. The Bank raised its monetary base target by an additional 10-20 trillion yen and said it will make extra asset purchases. The move was quite unexpected and aims to fight deflation.

Statement by the Bank of Japan:

1. At the Monetary Policy Meeting, the Policy Board of the Bank of Japan decided upon the following measures. 

1. Accelerating the pace of increase in the monetary base by a 5-4 majority vote. The Bank will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen (an addition of about 10-20 trillion yen compared with the past). 

2. Increasing asset purchases and extending the average remaining maturity of Japanese government bond (JGB) purchases by a 5-4 majority vote:
a) The Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 80 trillion yen (an addition of about 30 trillion yen compared with the past). With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be extended to about 7-10 years (an extension of about 3 years at maximum compared with the past). 
b) The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of about 3 trillion yen (tripled compared with the past) and about 90 billion yen (tripled compared with the past), respectively. The Bank will make ETFs that track the JPX-Nikkei Index 400 eligible for purchase.

2. Japan's economy has continued to recover moderately as a trend and is expected to continue growing at a pace above its potential. However, on the price front, somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently. A temporary weakness in demand has already started to wane, and the decline in crude oil prices will have positive effects on economic activity from a somewhat longer-term perspective and will push up prices. Nevertheless, if the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed. To pre-empt manifestation of such risk and to maintain the improving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative monetary easing (QQE).

3. The Bank will continue with the QQE, 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.

Bank of Japan Expands Stimulus

BoJ | Joana Taborda |
10/31/2014 9:22:36 AM