TOKYO: The Bank of Japan (BoJ) expanded monetary stimulus and pledged to buy unlimited amount of bonds to keep borrowing costs low as the government tries to spend its way out of the deepening economic pain from the coronavirus pandemic.
The move puts the BoJ in line with other major central banks that have unleashed unprecedented amounts of monetary support as the health crisis stokes fears of a deep global recession.
The central bank also sharply cut its economic forecast and projected inflation would fall well short of its 2% target for three more years, suggesting its near-term focus will be to battle the crisis.
“Japan’s economy is likely to remain in a severe situation for the time being due to the impact from the spread of Covid-19 at home and abroad, ” the central bank said in a statement.
To ease corporate funding strains, the BoJ said it would boost by three-fold the maximum amount of corporate bonds and commercial debt it buys to 20 trillion yen (US$186bil).
The central bank also clarified its commitment to buy unlimited amounts of government bonds by scrapping loose guidance to buy them at an annual pace of 80 trillion yen.
“The BoJ will purchase necessary amounts of government bonds without setting an upper limit” to keep long-term interest rates around its 0% target, the statement said.
The central bank said it would buy government bonds and short-term securities “actively” for the time being to keep markets stable as the government issues more bonds to pay for its huge stimulus package.
“For the BoJ, the removal of the bond-buying target is like killing two birds with one stone, ” as it can ramp up bond buying now and whittle it down later if it wants to end ultra-loose policy, said Toru Suehiro, senior market economist at Mizuho Securities.
“With today’s move, the BoJ can stand pat on monetary policy for the time being void of a disruptive market move, ” he said.
At the meeting yesterday, cut short by a day as a precaution against the spread of the pandemic, the BoJ kept its interest rate targets unchanged, as had been widely expected. — Reuters
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