By Arjun Kashyap - The Bank of Japan, or BoJ, announced in its monetary policy statement Tuesday that it would continue to expand its monetary base at the current annual rate, while focusing on expanding credit demand in an economy that is expected to continue its modest rate of recovery.
The BoJ will conduct money market operations to increase its monetary base by 60 trillion yen to 70 trillion yen annually. It will purchase Japanese government bonds worth 50 trillion yen annually, and buy exchange-traded funds, or ETFs, at an annual pace of 1 trillion yen. The bank will also buy Japanese real estate investment trusts, or J-REITS, worth 30 billion yen and maintain outstanding corporate debt worth 5.4 trillion yen.
The bank also announced that it would extend a measure aimed at stimulating credit growth in the country’s economy by one year. Noting an improvement in exports and business investments, and an increase in jobs and incomes, the bank observed that an increase in demand could be attributed to a spike ahead of the looming tax hike, scheduled for April, following which demand is expected to dip.
“Specifically, under the Stimulating Bank Lending Facility, financial institutions will be able to borrow funds from the Bank up to an amount that is twice as much as the net increase in their lending,” a statement from the bank said, adding: “the maximum amount of the Bank's fund-provisioning under the main rules will be doubled from 3.5 trillion yen to 7 trillion yen.” As part of the stimulus facility, financial institutions will be able to borrow funds at a fixed annual rate of 0.1 percent for four years instead of the current cap of three years.
“The Bank expects that these enhancements will further promote financial institutions' actions as well as stimulate firms' and households' demand for credit, with a view to encouraging banks' lending and strengthening the foundations for economic growth,” the statement said.
The central bank, in its statement, also noted that the Japanese economy continues to be headed toward a moderate recovery and cited developments in the emerging markets, and recoveries in the U.S. and Europe as potential risks to its outlook.
The bank also said it would target its easy monetary policy with an eye on its price stability target of 2 percent “as long as it is necessary for maintaining that target in a stable manner.”
“[The bank] will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate,” it said.