BOJ boosts purchases of ETFsThe Bank of Japan (BOJ) on Friday expanded its purchases of exchange-traded funds (ETF) and doubled the size of a U.S. dollar lending program, while refraining from boosting the pace of government bond purchases that have formed the main part of its monetary stimulus.
Gov. Haruhiko Kuroda led his board in voting to expand an ETF program to 6 trillion yen ($58 billion) a year, the BOJ said in a statement in Tokyo Friday. In an unexpected development, Kuroda has ordered an assessment of the effectiveness of BOJ policy, to be undertaken at the next meeting, scheduled for Sept. 20-21.
The central bank kept its annual target for expanding the monetary base at 80 trillion yen, done mainly through an equivalent increase in government bond holdings. It also left untouched the minus 0.1 percent rate for a portion of commercial banks’ reserves. A dollar lending program was expanded to $24 billion.
By taking some action, Kuroda, 71, offers support for Prime Minister Shinzo Abe, who two days ago unveiled a 28 trillion yen fiscal stimulus package that will now bear the main burden for stoking expectations for growth and inflation. The BOJ had come under increasing pressure from the government to make a move that dovetailed with its own package, making it tough for Kuroda and his team to leave policy entirely unchanged today.
“They succumbed to political pressure this time,” said Takeshi Minami, an economist at Norinchukin Research Institute. “The BOJ couldn’t do anything on the negative rate because it’s unpopular. This won’t be the end of stimulus and expectations for further easing will last.”
Most economists had predicted more from the BOJ, given diminishing inflation expectations and weak growth. Almost two-thirds had predicted a rate cut, more than two thirds had seen an acceleration in ETF buying and just over half predicted a stepping-up in the increase of the monetary base. The BOJ said there are risks to achieving its 2 percent inflation target within its latest time frame - sometime in the 12 months through March 2018 - and that it took action to ward off a decline in business and consumer sentiment. Risks are also rising because of the U.K.’s decision to exit the European Union and a slowdown in emerging-market economies, the bank said.
The limited policy action from the BOJ move underscores a perception that it is running into operational challenges as the Kuroda era of massive stimulus wears on. The former Finance Ministry currency policy chief fired his first bazooka weeks after taking the BOJ’s helm in March 2013, and surprised investors by expanding the program in October 2014. More recently, the introduction of a negative-rate policy this January came as a shock to observers, just days after he had publicly rejected the idea.
The expansion of the dollar lending program to $24 billion, and a new program started to lend some of the BOJ’s bonds to financial institutions, was intended to increase access to supplies of the U.S. currency.
The focus now shifts to Abe’s fiscal package, the outlines of which are set to be reviewed by the cabinet next week, with analysts anticipating passage in parliament in October. The BOJ said its own action today would have synergy benefits with government measures.
Much of the 28 trillion yen headline number from Abe’s plan is likely to be loans that can be spread over years. There’s about 7 trillion yen of new spending included, according to a person familiar with the matter, who didn’t specify the time frame for the outlays. Bloomberg