BOJ keeps rate, finalizes 5 tril. yen asset-buying program+

TOKYO, Nov. 5 Kyodo -
The Bank of Japan on Friday held its key interest rate steady around zero to
0.1 percent and worked out the details of its 5 trillion yen asset-buying
program unveiled last month for monetary easing, such as methods of buying
risky assets, to get the scheme under way from next week.
At a two-day policy meeting, the BOJ's Policy Board refrained from taking
additional easing steps after the U.S. Federal Reserve's steps two days before
were largely within investors' expectations and had only a limited impact on
the yen.
On the state of the Japanese economy, the BOJ warned in a statement that
although it still shows signs of moderate recovery, ''the recovery seems to be
pausing.''
''The bank will continue to carefully examine the outlook for economic activity
and prices, and take policy actions in an appropriate manner,'' it added.
BOJ Governor Masaaki Shirakawa said at a press conference after the policy
meeting that the central bank is ''taking larger risks than before'' by
launching the 5 trillion yen facility, under which it will purchase
exchange-traded funds and real estate investment trusts that may incur losses
for the first time.
''I believe it should produce extremely strong easing effects,'' he said.
Shirakawa also expressed the bank's readiness to take additional steps, saying,
''When economic and price conditions deteriorate...expanding the fund would be
an important choice.''
The BOJ was originally scheduled to hold a policy meeting on Nov. 15-16, but
the central bank decided at its previous policy meeting on Oct. 28 to move up
the meeting by more than a week, citing necessary preparations for the smooth
implementation of asset purchases.
Since the new schedule meant that the BOJ policy meeting would come right after
the two-day Federal Open Market Committee meeting, there has been speculation
that the BOJ may take further easing measures if the Fed's additional easing
steps drive the yen higher against the U.S. dollar.
Analysts say it was made easier for the BOJ to skip additional easing this time
as foreign exchange markets stayed relatively calm following the Fed's decision
to buy an additional $600 billion (about 48.6 trillion yen) in government bonds
to stimulate a sputtering economic recovery.
The dollar has been on the decline against the yen for weeks on expectations
about the Fed taking further quantitative easing action, repeatedly renewing
its 15-year lows in the 80 yen level. A higher yen is generally unfavorable for
Japanese exporters, a key driving force in the country's economy, as it reduces
the value of their earnings when repatriated.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said, ''If the
yen rises sharply beyond 80 (against the dollar,) if stocks fall
coincidentally, and the economy contracts further, it would be unavoidable for
the BOJ to expand the fund.''
Japanese economic and fiscal policy minister Banri Kaieda said at a press
conference Friday that the BOJ's recent monetary easing is ''a lot smaller than
the United States,'' noting the need for the BOJ to expand its asset purchase
scheme further.
Shirakawa, meanwhile, said it would be inappropriate to evaluate monetary
easing measures by focusing specifically on their scale, noting it was
necessary to observe their final effects, for example, if they drive interest
rates to desirable levels.
Under the BOJ's comprehensive monetary easing policy adopted last month, the
central bank plans to spend 5 trillion yen to purchase various financial
assets, ranging from government bonds and corporate debt to ETFs and REITs, to
help stimulate private-sector investments, such as those in stocks and real
estate.
The step came in addition to its existing 30 trillion yen lending operation
that offers three- and six-month loans at interest rates as low as 0.1 percent.
At the latest policy talks, the BOJ decided to buy ETFs linked to the Topix or
the Nikkei 225 stock indices and AA- or higher-rated REITs.
The BOJ plans to begin purchasing government bonds at the beginning of next
week and subsequently other assets under the program.
The 5 trillion yen fund is structured to buy 3.5 trillion yen in government
debt, 1 trillion yen in corporate debt, 450 billion yen in ETFs and 50 billion
yen in REITs by the end of 2011.
The BOJ said its nine-member Policy Board voted unanimously to keep the
uncollateralized overnight call rate on hold, or stick to an effective
zero-interest-rate policy.
==Kyodo
2010-11-05 22:39:47


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