In a sign of the times, the two-day meeting of the Bank of Japan (BOJ) ended after a day as a precaution against the spread of the COVID-19 pandemic, the very thing that forced the bank into a further relaxation of its already very easy stance.
While the BOJ kept its interest rate targets unchanged, as had been widely expected, it pledged to buy an unlimited amount of bonds to keep borrowing costs low as the Abe government tries belatedly to spend its way out of the deepening economic pain from the coronavirus pandemic.
To ease corporate funding strains, the BOJ said, it will boost by three-fold the maximum amount of corporate bonds and commercial debt it buys to 20 trillion yen ($US186 billion).
The Abe government expanded a state of emergency this month asking people to stay home and businesses to close, adding to woes for an economy already on the edge of recession.
That is proving hard to implement with Japanese households are not as digitally savvy as media stories might leave us to believe – broadband is not good, not every home has high-speed digital products or even up to date computers or laptops.
Video conferencing is reportedly weak and many Japanese businesses processes involve fax, not email, and lot’s of paper which need individuals to sign via special seals, meaning they have to be in the office.
To support the economy, the government boosted its spending package last week to a record $1.1 trillion yen, which will be paid for partly by issuing more bonds – straining Japan’s already tattered finances.
Those bonds will be issued and then could be bought by the central bank as it targets low rates.
The BOJ made one significant change – it offered to pay a 0.1% interest to financial institutions that tap its new loan program to combat the pandemic – a move aimed at encouraging commercial banks to boost lending to cash-strapped firms.
Under a policy dubbed yield curve control, the BOJ targets short-term interest rates at -0.1%, and 10-year bond yields around 0%. It also buys government bonds and risky assets such as Exchange Traded Funds, to pump money into the economy.
Monday’s announcement brings the BOJ into line with other major central banks that have unleashed record amounts of monetary support to soften the impact of the COVID-19 driven lockdowns and other economic measures.
In the case of the ECB and the BOJ’s they have been doing that because of a stuttering, lacklustre economies, weak inflation, and no sign of any improvement.
The BOJ moved a day before the US Federal Reserve starts a two-day meeting and three days before the next meeting of the European Central Bank.
The trio now have roughly similar policy stances – the BOJ though has been dealing with a weak economy for years compared with the Fed while the ECB saw the eurozone economy perk up from around 2015 onwards, only to be hit by the COVID-19 pandemic starting in Italy and Spain.
The central bank also chopped its economic forecast and forecast inflation would fall well short of its 2% target for three more years. That target was set back in January 2013, and has never been hit.
BOJ’s lingering problem is weak inflation -the reason why it kicked off its current policy stance back in 2012 and 2013.
Nothing has changed as Governor Haruhiko Kuroda told a news conference after the policy meeting. on Monday;
“The achievement of the BOJ’s 2% inflation target … will take time. The outlook for prices is highly uncertain,” he added.
And now so is the outlook for the entire economy with the state of emergency and growing fears that the virus could be on the edge of a breakout, as did in the US, Italy, the UK, and Spain.
