BOJ Easing for Second Time in Two Months

on Oct 30, 2012

**Asset Purchases Increased to Support Economy on Cusp of Recession**

The Bank of Japan (BOJ) expanded its asset-purchase programme, the country’s main monetary easing tool, by 11 trillion yen (£86 billion) to 66 trillion yen (£515 billion). During today’s meeting, the BOJ also decided to keep its separate credit loan programme unchanged at 25 trillion yen (£195 billion), Bloomberg News reported on 30 October 2012.

Japan’s central bank expanded its asset-purchase fund by 10 trillion yen (£78 billion) on 19 September, making today the first time since May 2003 that it has loosened twice in two months. While it is unusual for the BOJ to ease policy for two straight months, the economy’s condition required the bold action, analysts say.
According to data released earlier today, in September Japan’s steepest fall in industrial output since last year’s earthquake and tsunami was recorded, while job availability dropped for the first time in more than three years – both signs that the negative impact of the global slowdown and a territorial row with China was broadening. Many analysts have even predicted that BOJ Governor Masaaki Shirakawa may face pressure to keep up the current policy of easing.

Chief strategist for fixed income at Barclays in Tokyo, Chotaro Morita, said before the central bank’s meeting today: “There is a high chance that the BOJ will have to ease again in January or February considering the political pressure and the slowing economy.”
!m[](/uploads/story/669/thumbs/pic_1_inline.png)Such further easing may be likely considering the central bank’s joint statement with the government pledging their combined efforts to shore up the economy and pull it out of deflation. “The BOJ will pursue powerful monetary easing aiming for 1 pct inflation and until that goal comes into sight,” said the statement signed by Mr Shirakawa and Economy Minister Seiji Maehara.

**Easing in Line with Expectations**
While some analysts had been sceptical of the possibility that the conservative BOJ would increase asset purchases two months in a row, the fresh easing measures came in line with general market expectations, with the slew of negative data heightening the case for further asset purchases.
The most probable option for the central bank was an increase in its asset buying and lending programme by at least 10 trillion yen as anything less was likely to disappoint markets and trigger an unwanted yen rise and falls in share prices, market experts said prior to today’s central bank gathering. The BOJ’s 1 per cent inflation target was also foreseen by analysts, who predicted the bank’s strong commitment to continue pumping cash into the economy until this aim is achieved.
The bank is now set to cut its long-term economic and price forecasts later today, when the bank is scheduled to announce its first projections for the fiscal year that starts in April 2013. Analysts say that the BOJ is likely to admit that it will take several more years for Japan to achieve its 1 per cent inflation target.


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