BOJ
keeps base money target, fine-tunes stimulus scheme to
promote capex
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[December 18, 2015]
By Leika Kihara
TOKYO (Reuters) - The Bank of Japan
maintained its money printing drive at the current rate on Friday, but
reorganized its massive stimulus program to advance premier Shinzo Abe's
plans to prod reticent companies into boosting wages and investment.
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As widely expected, the BOJ kept intact its policy target of
increasing or cash and deposits in circulation by 80 trillion yen
($660 billion) and the pace at which it buys government bonds and
trust funds investing in stocks and property.
But it decided to extend the duration of the Japanese government
bonds (JGBs) it buys from 10 to 12 years from 2016 and set up a
300-billion-yen fund to buy exchange-traded funds (ETFs) that
specifically target firms actively spending on capital expenditure
and wages.
BOJ Governor Haruhiko Kuroda said the fine-tuning will allow the
bank to sustain or even expand stimulus more easily, dismissing the
views of some investors that it was taken to avoid bolder steps as
its bond buying was drying up market liquidity.
But Tokyo stock prices sank as markets saw the new steps as a return
to the incremental policy style Kuroda said he had abandoned when
launching his stimulus program - dubbed "quantitative and
qualitative easing" (QQE) - in 2013.
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"The BOJ had never imagined that it would need to continue with QQE
for this long," said Naomi Muguruma, senior market economist at
Mitsubishi UFJ Morgan Stanley. "Today's step marks a shift from
shock therapy to a long drawn-out struggle in its efforts to achieve
2 percent inflation," she said.
Kuroda said the new steps do not amount to additional monetary
easing as they did not address downside risks to the economy. He
also said they were not directly spurred by the U.S. Federal
Reserve's decision on Wednesday to raise interest rates.
"We've taken steps to supplement QQE so that we can expand the
program without hesitation if needed," Kuroda told a news conference
after the decision.
"Companies and households are shifting away from a deflationary
mindset," he said. "But there are discrepancies among sectors, so we
want to broaden the positive momentum. We wanted to do whatever we
can to support this drive."
DISSENTERS CLOUD EASING PROSPECTS
Friday's moves underscore the BOJ's resolve to aid Abe's efforts to
pressure companies into diverting more of their record profits to
wage hikes and new investment, which are crucial to sustainably pull
the economy out of deflation.
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The central bank said it would initially target ETFs that track the
JPX-Nikkei 400 index which features companies that promote
transparency and good governance.
It also said it would sell from April next year shares it had bought
from financial institutions, giving it the power to buy shares of
firms that meet its wage and investment standards.
However, the new policy emphasis underscores the BOJ's concerns over
how long it could keep buying assets at the current rate, having
already gobbled up 30 percent of JGBs on issue.
Kuroda attempted to keep alive market expectations of further
monetary easing, stressing his resolve to take "bold action" if
needed to achieve its price target.
But even Friday's modest measures found three dissenters on the
BOJ's nine-member board, suggesting that Kuroda may struggle to win
enough votes if he were to propose expanding stimulus, some analysts
say.
"This is the type of incremental move that Kuroda previously said he
opposes," said Hiroshi Shiraishi, senior economist at BNP Paribas
Securities. "It suggests that the BOJ has reached the limit of its
current quantitative easing and that it cannot expand easing by a
large amount."
(Additional reporting by Stanley White, Tetsushi Kajimoto and Kaori
Kaneko; Editing by Eric Meijer)
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