BOJ ramping up stimulus

Bloomberg

The Bank of Japan (BOJ) said it’ll buy as many government bonds as it needs to and ramped up purchases of corporate debt, adding stimulus after the declaration of a nationwide state of emergency brought more shutdowns and heightened the need for financial support at struggling businesses.
By ditching the guideline to increase holdings of government debt by around 80 trillion yen ($743 billion) per year, the BOJ now has no limits on purchases at a time when the government will issue new bonds to fund record stimulus.
“The government and the BOJ are truly strengthening policy coordination,” said Japan’s economy minister, Yasutoshi Nishimura, following his attendance at decision.
Market reaction was mixed. The Nikkei 225 stock index added to gains, finishing up 2.7%. The yen strengthened against the dollar to 107.18 shortly after the equity market close, from around 107.48 immediately before the decision.
The bank had come under increasing pressure to expand its unprecedented monetary stimulus as coronavirus hammers the world economy. With the extra measures focused largely on supporting struggling companies with financing, the bank kept its short- and long-term interest rate targets unchanged.

Still, it remains in question how Monday’s move will actually change the BOJ’s bond purchases as the central bank hasn’t bought at a pace anywhere near that level in recent years. The current yield curve control program doesn’t require a surge in purchases as long as 10-year bond yields stay around 0%, so the removal of a numerical target adds flexibility to buy more now, and possibly less in the long run.
The central bank also increased its scope for buying corporate bond and commercial paper by more than doubling its ceiling on holdings to 20 trillion yen. That’s aimed at easing financial conditions for companies across the economy as virus lockdowns dent demand at home and abroad.
It also expanded access to its emergency loan program to a wider range of banks. It projected inflation as low as minus 0.7 percent in the 12 months to March 2021, according to its statement and outlook.
With the extra measures focused largely on supporting struggling companies with financing, the bank kept its short- and long-term interest rate targets unchanged. A return to relative stability in stock markets and reduced concern over the possibility of an abrupt yen appreciation have given the BOJ some breathing space to leave its main interest-rate policy levers untouched.
Some economists saw the ditching of the largely symbolic guideline as a further sign of the BOJ’s limited policy firepower.
“The BOJ strengthened its policy in line with expectations, but it failed to go beyond expectations,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former Bank of Japan official. “That shows the BOJ has been running out of ammunition, and it’s getting harder for the BOJ to create fresh measures.”