TOKYO: The Bank of Japan kept its monetary policy unchanged on Friday, Nov 5 and brushed off suggestions it might need to ease more just to keep pace with the Federal Reserve's latest $600 billion economic stimulus installment.
Still, Governor Masaaki Shirakawa said the central bank was ready to expand its own 5 trillion yen ($62 billion) asset buying plan announced only a month ago if the economy worsens.
Some analysts say the BOJ may have to relax its policy again before the end of the year to counter the effect the fresh supply of dollars may have on the yen, but Shirakawa stressed this was not a contest about who pumps more money into the economy.
"I do not see Japan and the United States as in a monetary easing competition," Shirakawa told a news conference.
"The degree of monetary easing cannot be measured simply by the amount of assets central banks purchase," he said, adding that the success of policy easing should be measured how effective it was in bringing down borrowing costs.
The BOJ is the third major central bank to hold fire after the Fed's Nov. 3 move to pump more money into the struggling U.S. economy by buying government bonds.
The scope of the plan broadly matched market expectations, sparing Japan a dollar sell-off and a sharp yen spike that could have forced the BOJ's hand.
That allowed the BOJ to focus on rolling out the asset buying plan, which starts early next week with government bond purchases. The central bank will also buy real estate investment trusts (REITs) and exchange-traded funds (ETFs) linked to Tokyo stock indexes.
Both the European Central Bank and the Bank of England kept their policies unchanged on Thursday, seemingly satisfied that the euro zone and Britain did not need as potent medicine as prescribed by the Fed for the U.S. economy.
As expected, the BOJ also unanimously voted to keep its rates effectively at zero and maintained the size of the asset buying plan. Shirakawa warned, however, that Japan's moderate economic recovery was stalling as growth in exports and output paused, suggesting that the BOJ was ready to loosen credit if necessary.
"What has been announced is not enough compared to the U.S. central bank's expansion of easing steps," said Susumu Kato, chief economist at Credit Agricole in Tokyo.
"The BOJ needs to further expand its easing measures to beat deflation and prevent the yen from appreciating further. It is expected to do so in the next few months."
The planned BOJ injection of little more than $60 billion pales in comparison with the Fed's plan, even given that the U.S. economy is nearly three times as big as Japan's.
UNCONVENTIONAL BUYS
In fact, by highlighting that contrast in size, Economics Minister Banri Kaieda suggested that Japan's central bank may face calls in the future for an expanded scheme.
The BOJ last eased its policy early in October by setting a new interest rate target in a 0-0.1 percent range, pledging to keep rates effectively at zero until the end of deflation was in sight, and by announcing the asset buying plan.
The size of the asset buying pool now effectively serves as the gauge of BOJ's monetary easing. By buying assets directly from the market, the central bank hopes the scheme will be more effective than its 2001-2006 quantitative easing campaign that targeted the amount of deposits commercial banks held at the BOJ.
The BOJ says its current scheme aims to reduce risk premiums and encourage private investment by targeting a broader range of assets than the Fed buys, including less conventional, riskier instruments. - Reuters
Still, Governor Masaaki Shirakawa said the central bank was ready to expand its own 5 trillion yen ($62 billion) asset buying plan announced only a month ago if the economy worsens.
Some analysts say the BOJ may have to relax its policy again before the end of the year to counter the effect the fresh supply of dollars may have on the yen, but Shirakawa stressed this was not a contest about who pumps more money into the economy.
"I do not see Japan and the United States as in a monetary easing competition," Shirakawa told a news conference.
"The degree of monetary easing cannot be measured simply by the amount of assets central banks purchase," he said, adding that the success of policy easing should be measured how effective it was in bringing down borrowing costs.
The BOJ is the third major central bank to hold fire after the Fed's Nov. 3 move to pump more money into the struggling U.S. economy by buying government bonds.
The scope of the plan broadly matched market expectations, sparing Japan a dollar sell-off and a sharp yen spike that could have forced the BOJ's hand.
That allowed the BOJ to focus on rolling out the asset buying plan, which starts early next week with government bond purchases. The central bank will also buy real estate investment trusts (REITs) and exchange-traded funds (ETFs) linked to Tokyo stock indexes.
Both the European Central Bank and the Bank of England kept their policies unchanged on Thursday, seemingly satisfied that the euro zone and Britain did not need as potent medicine as prescribed by the Fed for the U.S. economy.
As expected, the BOJ also unanimously voted to keep its rates effectively at zero and maintained the size of the asset buying plan. Shirakawa warned, however, that Japan's moderate economic recovery was stalling as growth in exports and output paused, suggesting that the BOJ was ready to loosen credit if necessary.
"What has been announced is not enough compared to the U.S. central bank's expansion of easing steps," said Susumu Kato, chief economist at Credit Agricole in Tokyo.
"The BOJ needs to further expand its easing measures to beat deflation and prevent the yen from appreciating further. It is expected to do so in the next few months."
The planned BOJ injection of little more than $60 billion pales in comparison with the Fed's plan, even given that the U.S. economy is nearly three times as big as Japan's.
UNCONVENTIONAL BUYS
In fact, by highlighting that contrast in size, Economics Minister Banri Kaieda suggested that Japan's central bank may face calls in the future for an expanded scheme.
The BOJ last eased its policy early in October by setting a new interest rate target in a 0-0.1 percent range, pledging to keep rates effectively at zero until the end of deflation was in sight, and by announcing the asset buying plan.
The size of the asset buying pool now effectively serves as the gauge of BOJ's monetary easing. By buying assets directly from the market, the central bank hopes the scheme will be more effective than its 2001-2006 quantitative easing campaign that targeted the amount of deposits commercial banks held at the BOJ.
The BOJ says its current scheme aims to reduce risk premiums and encourage private investment by targeting a broader range of assets than the Fed buys, including less conventional, riskier instruments. - Reuters
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