Bank of Japan expands easing measures, cuts growth forecast

Tokyo

THE Bank of Japan (BOJ) on Monday ramped up its emergency monetary easing, lifting the cap on its buying of government bonds and increasing purchases of other assets, while cutting its growth forecasts.

After a meeting shortened from two days to one, the central bank said it would shift to unlimited government bond-buying and more than double its capacity to purchase corporate bonds and commercial papers - a move to support Japan Inc's financing as the country grapples with the spread of coronavirus.

The move is "largely symbolic, but it's better than doing nothing", Taro Saito, a senior economist at NLI Research Institute, said ahead of the decision.

"Given the circumstances, no one expects the latest policy can turn the economy around, and the same can be said about fiscal stimulus," he said.

Even before lifting the 80 trillion yen (S$1.06 trillion) cap on government bond buying, the BOJ's purchases were well below the ceiling, Mr Saito noted.

In a quarterly economic report issued on Monday, the bank also revised down growth forecasts for the world's third-largest economy.

For the current fiscal year to March 2021, it now forecasts the economy will shrink by 0.3 per cent to 5 per cent, compared with the previous estimate of 0.8 per cent to 1.1 per cent growth.

For the past year to last month, the BOJ estimates the economy shrank 0.1 per cent to 0.4 per cent, compared with the previously estimated 0.8 per cent to 0.9 per cent growth.

However, it revised up the forecast for fiscal year to March 2022, now estimating growth of 2.8 per cent to 3.9 per cent, against a previous estimate of a one per cent to 1.3 per cent expansion.

Japan's economy has been in an increasingly severe situation due to the impact of the spread of the novel coronavirus at home and abroad," the bank said in a statement.

"Financial conditions have been less accommodative in terms of corporate financing, as seen in deterioration in firms' financial positions," it added.

It said its "current powerful monetary easing measures... will contribute to supporting economic and financial activities", along with measures taken by governments at home and abroad to tackle the pandemic.

The central bank left rates unchanged and also reiterated its longstanding commitment to a 2 per cent inflation target, which has remained stubbornly elusive.

But it revised down its forecast for core consumer prices, which exclude fresh food, now estimating the fiscal year to March 2021 will see the prices falling between 0.3 per cent and 0.7 per cent on-year, against rises of one per cent to 1.1 per cent in the previous estimate.

The central bank's decisions come ahead of the US Federal Reserve's meeting later this week to shore up confidence and keep the financial sector running.

The Fed has already unveiled measures to bolster liquidity and cut interest rates to a historic near-zero as the coronavirus slammed the US economy, so it is not expected to do much besides project confidence at its policy meeting this week, analysts have said.

Prime Minister Shinzo Abe's government last month unveiled a package of stimulus measures worth around US$1 trillion to protect jobs, bolster the medical sector and ease the pain for working families.

Earlier this month, Mr Abe said the government will offer a cash payment of 100,000 yen to every resident.

"Japan's economy is likely to remain in a severe situation for the time being due to the impact of" the virus, the BOJ said in its quarterly report.

"Thereafter, as the impact of the spread of the Covid-19 wanes at home and abroad, Japan's economy is likely to improve, supported by accommodative financial conditions and the government's economic measures," it added. AFP