March 13, 2012 / 6:04 AM / in 7 years

Instant View: BOJ skips easing but extends loan scheme on growth

TOKYO (Reuters) - The Bank of Japan kept monetary policy steady after last month’s surprise easing but extended a loan scheme for growth sectors to keep up its long-term efforts to boost the country’s potential growth and beat deflation.


— Board member Ryuzo Miyao unsuccessfully proposed a further easing by increasing the bank’s asset-buying and loan scheme by 5 trillion yen ($61 billion). The proposal was rejected by a vote of 8-1.

— The central bank expanded a separate loan scheme targeting growth industries by 2 trillion yen, taking it to 5.5 trillion yen, and incorporated several new loan arrangements including one that will tap its dollar reserves to offer investments and loans denominated in foreign currencies.

— The deadline for applications to tap the programme was extended by two years to March 2014.

— As widely expected, the BOJ maintained its key interest rate at a range of zero to 0.1 percent by a unanimous vote.

— Governor Masaaki Shirakawa will hold an embargoed news conference with his comments expected to come out sometime after 4:15 p.m. (0715 GMT).


“I would say the BOJ basically eased policy, as the central bank decided to increase the size of the loan scheme for growth sectors by 2 trillion yen and to create a new dollar loan arrangement. I would not say the central bank kept policy unchanged.

“What the BOJ decided was the minimum to respond to pressure from the government and the market. But these steps are not enough. Pressure from the government and the markets will likely increase.

“The BOJ is highly likely to ease monetary policy in April-June as falls in the yen have not gone far and rises in share prices are insufficient. I expect the BOJ will ease policy continuously once every two or three months for the rest of this year.

“There are various things the BOJ can do on monetary easing but it will be easier for it to boost its asset buying scheme such as by increasing its foreign bonds buying, or raising its inflation goal to 2 percent from 1 percent.”


“Markets were disappointed at least temporarily because there were some expectations for additional easing. So attention now is on whether Governor Shirakawa will hint at further easing from April.

“Nevertheless the BOJ showed its resolve to tackle structural problems through the new loan arrangement to small firms just as reconstruction-related demand rises. As for the dollar loan arrangement, the BOJ may be trying to shield Japanese firms from currency risks by taking on those risks itself.

“I believe there is more than a 50 percent chance of the BOJ embarking on additional easing when it releases its outlook report on April 27. It is likely to start buying government bonds with five years to maturity and may lift its inflation goal.”


“Even though some overseas market players seem to have expected a further easing, the central bank held its fire because of its rather favorable economic outlook. I think the BOJ made the right decision, as recent economic indicators back up the bank’s favorable view on the economy.

“That said, the BOJ is basically maintaining its stance of monetary easing after setting an inflation goal of 1 percent. To clarify its determination to beat deflation, the BOJ could ease policy further as early as late April, when it is expected to revise down price forecasts for fiscal 2012/13 in its twice-yearly outlook report.

“Further easing is likely to come in the form of boosting its JGB purchases via the asset-buying scheme. The BOJ should buy JGBs with longer maturities up to five years. Simply increasing the current purchases of JGBs with maturities up to two years would have only a limited impact on market interest rates, while making it harder to attract bids in auctions.”


“The BOJ could take some emergency steps if the dollar fell to 80 yen. A move like that in the currency market would also increase political pressure on the central bank to act.

“Otherwise, the impression is that the BOJ doesn’t want to accumulate assets any further.

“Once foreign investors in Japanese stocks realize that the BOJ is not as aggressive on asset purchases as they thought then this could have a negative impact on Japanese equities.”


For the text of the BOJ statement click:


For BOJ website click:


— The BOJ surprised markets last month by boosting its asset-buying scheme and setting a 1 percent inflation goal, signaling a more aggressive monetary easing stance to beat deflation, which has plagued Japan for more than a decade.

— The asset-buying scheme, which stands at 65 trillion yen ($791.56 billion), is the BOJ’s direct, short-term monetary policy tool to push down one- to two-year bond yields and risk premiums by purchasing government bonds and private debt such as corporate bonds, commercial paper and trust funds investing in property and stocks. It serves as a near-term monetary stimulus tool.

Reporting by Leika Kihara, Stanley White, Tetsushi Kajimoto and Rie Ishiguro; Editing by Michael Watson

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