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BOJ expands asset purchases and plans to continue

September 19, 2012 Central Bank News
The Bank of Japan (BOJ) expanded its asset purchase program by 10 trillion yen to some 80 trillion yen, saying economic growth had leveled off due to a deceleration in the global economy and that it would continue to purchase assets to ensure that financial conditions remain accommodative.

"The Bank expects that, together with the cumulative effects of earlier policy measures, today's decision to enhance monetary easing will ensure the return of Japan's economy to a sustainable growth path with price stability," the BOJ said in a statement.

The BOJ held its overnight call rate unchanged at 0-0.1 percent, the level it has been at since December 2008. The bank did not take any specific steps to weaken the strong yen, but noted that "attention should be paid to the effects of financial and foreign exchange market developments on economic activity and prices."

The BOJ had been expected to ease policy following the Federal Reserve's launch of a third program of Quantitative Easing (QE3), which has pushed up the yen agains the U.S. dollar, which hurts exports. Japan's finance minister has warned markets against pushing up the yen too much.

Japan's economy has expanded faster than most other advanced economies this year but deflation has now set in, with consumer prices down 0.4 percent, following a 0.2 percent drop in June.

Japan's Gross Domestic Product (GDP) rose at an annual rate of 3.2 percent in the second quarter, up from 2.9 percent in the first, but the BOJ has turned much more pessimistic about growth prospects.

Last month the BOJ expected Japan's economy to "recover moderately", but now it expects the economy to stagnate as "overseas economies have moved somewhat deeper into a deceleration phase" and an earlier fall in oil prices is exerting downward pressure on consumer prices.

"Against the backdrop of these developments, economic activity is expected to level off more or less and the year-on-year rate of change in the CPI to remain at around 0 percent for the time being," it said.
And overcoming deflation and returning to sustainable growth is a critical challenge.

"Based on this recognition, the Bank has been providing support to strengthen the foundations for economic growth and pursuing powerful monetary easing," the bank said, adding:
"It will proceed with the monetary easing in a continuous manner by steadily increasing the amount outstanding of the Asset Purchase Program."

Under the expanded asset purchase program, the BOJ said it would purchase about 5 trillion yen of additional Treasury bills and about 5 trillion yen worth of Japanese government bonds (JGBs). The increased purchase will be completed by around the end of 2013, the bank said.

The BOJ also said it would remove the minimum bidding yield for the purchases of JGBs and corporate bonds - which is currently 0.1 percent - to ensure their smooth purchase.