Shinzo Abe

BOJ pledges to review inflation goal

Japan's central bank loosens asset purchase programme again, chances of more easing 'high'

PUBLISHED : Friday, 21 December, 2012, 12:00am
UPDATED : Friday, 21 December, 2012, 3:46am


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The Bank of Japan expanded its asset-purchase programme for the third time in four months, and will reconsider its objectives for inflation as incoming Prime Minister Shinzo Abe urges more action to end price declines.

The central bank expanded its asset-purchase fund to 76 trillion yen (HK$6.98 trillion) from 66 trillion yen, according to a statement issued in Tokyo yesterday. The bank kept its credit lending programme unchanged at 25 trillion yen.

Abe, whose party swept to victory in this week's election, will have a chance to reshape the BOJ early next year when the terms of governor Masaaki Shirakawa and his two deputies expire.

He's pressing for a 2 per cent inflation target, compared with an existing 1 per cent goal. The yen has fallen about 5 per cent since the election was announced on November 14 as investors anticipate more expansive monetary policy in the world's third-largest economy.

"The BOJ is responding to the new administration which is calling for more aggressive monetary easing," said Junko Nishioka, chief economist at RBS Securities Japan and a former BOJ official.

"Looking to April and beyond, when the BOJ governor and deputy governors will change", the odds of more aggressive easing were high, Nishioka said.

The central bank kept its key interest rate unchanged between zero and 0.1 per cent and monthly purchases of government bonds at 1.8 trillion yen, yesterday's statement showed. The bank maintained its 1 per cent inflation goal for the time being.

Seventeen of 21 economists surveyed by Bloomberg News expected further easing measures yesterday with the rest forecasting action next month.

The Abe-led coalition secured a two-thirds majority in the lower house of parliament.

Abe said on December 17 his mission was to stimulate a recovery, end more than a decade of deflation and correct the strong currency.

"One reason for the LDP's big win lies in their emphasis on further monetary easing," said Masaaki Kanno, chief economist at JPMorgan Securities Japan and a former central bank official. "The BOJ can't ignore the voice of voters. The chance for back-to-back stimulus in December and January is rising."

The central bank adopted a 1 per cent inflation goal in February, and increased quantitative easing in February, April, September and October, the first consecutive monthly easing since 2003, with the BOJ and Shirakawa promising continued "powerful monetary easing" until the goal was in sight.

Japan's gross domestic product shrank an annualised 3.5 per cent last quarter after a 0.1 per cent decline in the previous three-month period, meeting the textbook definition of a recession. Machinery orders, an indicator of capital spending, rose for the first time in three months in October while factory output rose the most this year.