ID :
144959
Tue, 10/05/2010 - 23:58
Auther :
Shortlink :
https://www.oananews.org//node/144959
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BOJ revives zero-rate policy, to set up asset-buying program
TOKYO, Oct. 5 Kyodo -
The Bank of Japan on Tuesday effectively cut its key interest rate to zero to
adopt a policy not seen for several years and decided to set up a program to
buy long-term government bonds and other assets to prop up the nation's economy
which has been overshadowed by the rising yen.
The announcement of what the BOJ calls a ''comprehensive monetary easing
policy'' surprised market players and was welcomed by the government which saw
the BOJ taking coordinated moves to tackle deflation.
Under the central bank's decision reached at its two-day policy meeting from
Monday, the BOJ will guide its key interest rate to between zero and 0.1
percent, from the 0.1 percent target. The virtually zero-interest-rate policy
will be maintained until the BOJ judges that ''price stability is in sight,''
it said in a statement.
The central bank will also examine spending around 5 trillion yen on buying
assets ranging from long-term government bonds and short-term government
securities to commercial paper and corporate bonds under a temporary scheme
that would also cover an existing 30 trillion yen facility to make more funds
available to financial institutions.
''Through a package of policies, we would like to enhance the effect of
monetary easing to the utmost extent,'' BOJ Governor Masaaki Shirakawa told a
press conference after the policy meeting.
He also said that the central bank's decision came as it believes that the
nation's economic outlook is facing a greater risk of a downturn than
previously thought.
Reflecting the uncertain prospects, the BOJ said in its statement that ''the
pace of recovery is slowing down'' amid the deceleration in overseas economies
and the yen's rise, although it maintained that the economy ''shows signs of a
moderate recovery.''
It is the first time since July 2006 that the BOJ has set the target rate for
unsecured overnight call money at around zero percent.
On the criteria for lifting the zero-rate policy, Shirakawa referred to the
understanding among policymakers that price stability means the consumer price
index hovering in a positive range of 2 percent or lower, with the midpoint at
around 1 percent.
Meanwhile, Shirakawa stressed that the asset purchase program is an
''extraordinary'' measure that will lead the BOJ to take risks because buying
various financial assets may result in losses.
The BOJ may consider expanding the size of the program in the future if
necessary, Shirakawa indicated.
One of the nine Policy Board members, Miyako Suda, was against the inclusion of
government securities as assets to be purchased under the program, while all
members agreed to take the zero-rate policy.
The government's response to the BOJ's decision was generally favorable, with
Chief Cabinet Secretary Yoshito Sengoku telling a news conference that the move
was ''in concert with the government's efforts to overcome deflation.''
By taking action in parallel with the government's move to draw up a
supplementary budget to implement stimulus measures, the BOJ is apparently
hoping to demonstrate its resolve to address the yen's strength and prevent the
economy from sliding back into recession.
''It seems that the BOJ has done all of the things it can do at this moment,''
Hirokata Kusaba, an economist at the Mizuho Research Institute said, adding
that the outcome of the meeting was a surprise to many market players.
But he noted that the response in the financial markets was relatively
''tepid'' given that the BOJ presented additional monetary easing steps ''with
all its might.''
''This may be indicating that it is difficult to seek a solution to such
problems as deflation and the yen's rise in monetary policies...I think the
market's eyes will start to focus more on the acts of the fiscal policy
authorities,'' he said.
The BOJ has repeatedly taken monetary easing steps, most recently on Aug. 30
when it decided to increase the total amount of funds available under its
low-interest-rate funding operation to 30 trillion yen from 20 trillion yen.
The government and the BOJ also staged yen-selling intervention on Sept. 15 for
the first time in more than six years, but it failed to reverse the yen's
rising trend.
A strong yen is generally unfavorable for Japanese exporters, a key driving
force in the country's economy, as it undermines the competitiveness of
Japanese businesses and erodes the value of their earnings when repatriated.
It could also lead to lower import prices and prolonged deflation.
==Kyodo
The Bank of Japan on Tuesday effectively cut its key interest rate to zero to
adopt a policy not seen for several years and decided to set up a program to
buy long-term government bonds and other assets to prop up the nation's economy
which has been overshadowed by the rising yen.
The announcement of what the BOJ calls a ''comprehensive monetary easing
policy'' surprised market players and was welcomed by the government which saw
the BOJ taking coordinated moves to tackle deflation.
Under the central bank's decision reached at its two-day policy meeting from
Monday, the BOJ will guide its key interest rate to between zero and 0.1
percent, from the 0.1 percent target. The virtually zero-interest-rate policy
will be maintained until the BOJ judges that ''price stability is in sight,''
it said in a statement.
The central bank will also examine spending around 5 trillion yen on buying
assets ranging from long-term government bonds and short-term government
securities to commercial paper and corporate bonds under a temporary scheme
that would also cover an existing 30 trillion yen facility to make more funds
available to financial institutions.
''Through a package of policies, we would like to enhance the effect of
monetary easing to the utmost extent,'' BOJ Governor Masaaki Shirakawa told a
press conference after the policy meeting.
He also said that the central bank's decision came as it believes that the
nation's economic outlook is facing a greater risk of a downturn than
previously thought.
Reflecting the uncertain prospects, the BOJ said in its statement that ''the
pace of recovery is slowing down'' amid the deceleration in overseas economies
and the yen's rise, although it maintained that the economy ''shows signs of a
moderate recovery.''
It is the first time since July 2006 that the BOJ has set the target rate for
unsecured overnight call money at around zero percent.
On the criteria for lifting the zero-rate policy, Shirakawa referred to the
understanding among policymakers that price stability means the consumer price
index hovering in a positive range of 2 percent or lower, with the midpoint at
around 1 percent.
Meanwhile, Shirakawa stressed that the asset purchase program is an
''extraordinary'' measure that will lead the BOJ to take risks because buying
various financial assets may result in losses.
The BOJ may consider expanding the size of the program in the future if
necessary, Shirakawa indicated.
One of the nine Policy Board members, Miyako Suda, was against the inclusion of
government securities as assets to be purchased under the program, while all
members agreed to take the zero-rate policy.
The government's response to the BOJ's decision was generally favorable, with
Chief Cabinet Secretary Yoshito Sengoku telling a news conference that the move
was ''in concert with the government's efforts to overcome deflation.''
By taking action in parallel with the government's move to draw up a
supplementary budget to implement stimulus measures, the BOJ is apparently
hoping to demonstrate its resolve to address the yen's strength and prevent the
economy from sliding back into recession.
''It seems that the BOJ has done all of the things it can do at this moment,''
Hirokata Kusaba, an economist at the Mizuho Research Institute said, adding
that the outcome of the meeting was a surprise to many market players.
But he noted that the response in the financial markets was relatively
''tepid'' given that the BOJ presented additional monetary easing steps ''with
all its might.''
''This may be indicating that it is difficult to seek a solution to such
problems as deflation and the yen's rise in monetary policies...I think the
market's eyes will start to focus more on the acts of the fiscal policy
authorities,'' he said.
The BOJ has repeatedly taken monetary easing steps, most recently on Aug. 30
when it decided to increase the total amount of funds available under its
low-interest-rate funding operation to 30 trillion yen from 20 trillion yen.
The government and the BOJ also staged yen-selling intervention on Sept. 15 for
the first time in more than six years, but it failed to reverse the yen's
rising trend.
A strong yen is generally unfavorable for Japanese exporters, a key driving
force in the country's economy, as it undermines the competitiveness of
Japanese businesses and erodes the value of their earnings when repatriated.
It could also lead to lower import prices and prolonged deflation.
==Kyodo
