BOJ EXPANDS ETF PURCHASE TARGET; DOUBLES LENDING PROGRAM

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TOKYO (Alliance News) – The Bank of Japan raised the target for exchange-traded fund purchases and doubled its dollar lending program in addition to the fiscal stimulus that the government had unveiled two days ago.

However, investors were disappointed as the bank kept its interest rate and the pace of monetary base expansion unchanged on Friday. Moreover, BoJ today downgraded its projections for inflation and growth for fiscal 2016.

The Asian markets, which were weaker ahead of the announcement, did not react much and continue to the languish in the red. The yen has firmed up and is currently surging up about 1.7% at the mid 103 level against the dollar.

The bank will increase the purchases of exchange-traded funds so that their outstanding amount will rise at an annual pace of about JPY 6 trillion. This was almost the double the previous pace of around JPY 3.3 trillion.

The bank also decided to raise the size of its lending program to support growth in US dollars to USD24 billion. The bank plans to provide its US dollar funds for a period of up to 4 years to support Japanese firms’ overseas activities.

The board decided by an 8-1 majority vote to hold its target of raising the monetary base at an annual pace of about JPY 80 trillion.

Also, the board voted 7-2 to continue applying a negative interest rate of -0.1% to the policy rate balances in current accounts held by financial institutions.

With underlying inflation set to moderate further towards the end of the year, the Bank will still have to provide more easing before long, Marcel Thieliant, an economist at Capital Economics, said.

Policymakers may explore more radical measures, for example purchases of municipal bonds or providing loans to banks at negative interest rates, the economist noted.

Governor Haruhiko Kuroda instructed the board to review the effectiveness of the policy at the upcoming meeting.

The bank has lowered its fiscal 2016 GDP growth forecast to 1% from 1.2%, while it lifted the fiscal 2017 projection to 1.3% from 0.1%.

Inflation is expected to be 0.1% in fiscal 2016 versus the prior forecast of 0.5%. Consumer prices, excluding fresh food, are expected to rise only 1.7% in the next fiscal instead of 2.7% projected in April.

Prime Minister Shinzo Abe said Wednesday he will announce a fiscal stimulus worth more than JPY 28 trillion to boost the sluggish economy. The details of the package is set be reviewed by the cabinet next week.

Copyright RTT News/dpa-AFX

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