The Bank of Japan will consider implementing additional monetary easing measures at its Monday policy board meeting to tackle circumstances that would arise from an inevitable and serious economic downturn amid the spread of the new coronavirus.
Members at the Monetary Policy Meeting plan to discuss the abolition of the annual target of 80 trillion yen for the central bank to buy long-term Japanese government bonds (JGBs) as well as the need for more flexible purchases of JGBs.
The central bank also plans to expand its capacity to purchase corporate bonds and commercial paper to expend all possible means to support the cash flow management of companies.
The framework for the current monetary easing measures has been centered on interest rates since September 2016, aiming to guide the short-term interest rate to minus 0.1% and long-term interest rate, or the yield of newly issued 10-year government bonds, to about zero.
To achieve the interest rate targets, the central bank has been purchasing long-term JGBs, and its holdings are said to increase at an annual pace of about 80 trillion yen. The central bank's purchase of JGBs decreases interest rates.
In the past few years, with the Japanese economy recovering moderately, the target interest rates have been achieved, and the central bank has not had to purchase 80 trillion yen of JGBs annually. In fact, the central bank proposed JGB purchases in a more flexible manner, and the increase in its bond holdings was reduced to only about 14 trillion yen in fiscal 2019.
The central bank plans to discuss lifting its 80 trillion yen target at the coming meeting because it has reinforced concerns that issues caused by the ongoing new coronavirus pandemic might become prolonged.
The amount of JGBs currently purchased by the central bank annually is far from the 80 trillion yen target, and it has been pointed out that the figure has become a mere formality. It is not even considered as the upper limit of the purchase amount.
The central bank seems to view that by lifting the 80 trillion yen target, its aggressive stance on JGB purchases and monetary easing will be more obvious.
The envisaged move would also indicate the central bank's willingness to cooperate with a government that is tackling economic stimulus measures. It is expected to maintain the monetary policy framework centering on interest rates.
However, there is a possibility that opposition will emerge because the amount of JGB purchases is regarded as a symbol of the policies pursued by reflationists, who attach importance to monetary easing.
If the Bank of Japan is interpreted as buying an unlimited amount of JGBs, even if it is issued more, it could invite criticism that the central bank is in effect monetizing to help the government repay its debts.
This is because there is concern that the government will lose fiscal discipline. Based on this notion, the Bank of Japan will determine the details of the additional easing measures.
The meeting, which was initially scheduled for Monday and Tuesday, was shifted to a one-day session to reduce the risk of infection among BOJ Gov. Haruhiko Kuroda, board members and other central bank senior officials. The meeting is scheduled to begin at 9 a.m. and end around noon.
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