BOJ Ramps Up Asset Buying, Holds Rates Steady After Fed Cut

The Bank of Japan strengthened its stimulus but stopped short of cutting its negative interest rate at an early meeting Monday after the Federal Reserve slashed its own rates to address the rapidly mounting economic shock of the coronavirus pandemic.

The BOJ said it would buy more assets including exchange-traded funds and corporate bonds, and offer a new zero-interest rate loan program to ensure companies had the financing they needed, to help prop up sentiment and maintain stability in markets.

Under active buying of ETFs, the central bank will be able to buy at an annual pace of up to 12 trillion yen ($113 billion), double the annual target of about 6 trillion, suggesting more aggressive purchasing in the near-term.

Even before the Fed took action, most economists had predicted the bank would raise the ETF buying target, though not the ceiling on its purchases.

“This is the best the BOJ could do at this point. The BOJ has always proved that it had sufficient tools by coming up with new ones but this time there was nothing new. The hopes for another bit of BOJ magic have been dashed,” Masaaki Kanno, chief economist at Sony Financial Holdings and former BOJ official.

The meeting comes after the Fed cut its benchmark interest rate by a full percentage point to near zero and promised to boost its bond holdings by at least $700 billion to shield the U.S. economy from the fallout of the coronavirus.

The decision to raise the ETF purchases helped lift stocks in the minutes after the decision, though gains were soon pared back. The yen weakened against the dollar at first before heading back in the opposite direction to strengthen a touch.

The central bank’s main tools for stimulating activity in the economy and fueling price growth are its negative short-term rate and its zero rate target for yields on long-term government debt. The ETF purchases are aimed at lowering premiums on risky assets to encourage stable investment and support sentiment.

Wave of Action

The BOJ’s move was among a wave of unscheduled actions Monday following the Fed’s cut. New Zealand’s central bank slashed its benchmark interest rate by 75 basis points and the Reserve Bank of Australia, which already cut its cash rate earlier this month, said it will boost liquidity in short-term funding markets.

Leaders from the Group of Seven nations are set to discuss their virus response on a teleconference Monday. Central bankers and investors have pressed governments to do more to support their economies given monetary ammunition is running low and because fiscal policy can be targeted at corners of an economy that need it most.

In Japan, Prime Minister Shinzo Abe last week announced a second set of emergency measures to try to buoy the economy, but the package of cheap loans and workers subsidies didn’t include any fresh spending beyond already budgeted funds.

Abe expressed appreciation for what he said were swift and appropriate steps announced by the BOJ to support markets reeling from the effect of the coronavirus.

What Bloomberg’s Economist Says

“The Bank of Japan raised the target for its asset purchases and announced a new loan program, moves which were more aggressive than we had expected… Monetary easing by itself can’t do much to mitigate virus disruptions to Japan’s economy set for a recession, but it would buy time until additional fiscal stimulus is announced”

–Yuki Masujima, economist

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