Bank Of Japan Boosts Stimulus; Cuts Outlook

The Bank of Japan expanded the monetary stimulus for the second straight meeting as it removed the limit for government bond purchases and downgraded both its GDP and inflation projections due to the spread of coronavirus, or Covid-19.

The policy board of the BoJ, on Monday, unanimously decided to increase the maximum amount of additional purchases of commercial papers and corporate bonds and raised the upper limit of outstanding holdings to about JPY 20 trillion.

The bank will purchase Japanese government bonds without setting an upper limit so that the 10-year JGB yields will remain at around zero percent. The yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.

The BoJ expanded the range of collaterals that are eligible to avail the benefits of special funding operation introduced in March. Private debt including household debts is also eligible under the scheme.

Nonetheless, the board voted 8-1 to retain the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The BoJ board shortened the duration of the meeting with a view to making the utmost efforts to prevent the spread of the novel coronavirus.

In the quarterly report, the bank said the outlook for economic activity and prices is extremely unclear.

There are high uncertainties regarding the consequences of the spread of Covid-19, the timing of the spread subsiding, and the magnitude of its impact on domestic and global economies.

The central bank downgraded its GDP forecast for the fiscal 2020 to -5 percent to -3 percent from the previous projection of +0.8 percent to +1.1 percent.

Likewise, the inflation outlook for fiscal 2020 was lowered to -0.7 percent to -0.3 percent from +1 percent to +1.1 percent.

The Japanese economy is expected to expand in the range of 2.8 percent to 3.9 percent next fiscal year and 0.8 percent to 1.6 percent in the fiscal 2022.

Inflation is forecast to average zero to 0.7 percent in the fiscal 2021 and 0.4 percent to 1 percent in the fiscal 2022. Accordingly, the bank is unlikely to achieve its 2 percent inflation at least until 2022.

The board did not cut the policy rate even though all members expect a slump in activity, Marcel Thieliant, an economist at Capital Economics, said. “With our forecasts not miles away from the Bank’s, the chances of a rate cut are dwindling.”

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