Pedestrians walk past the Bank of Japan headquarters in Tokyo. The BoJ maintained its money printing drive at the current rate yesterday, but reorganised its massive stimulus programme to advance premier Shinzo Abe’s plans to prod reticent companies into boosting wages and investment.

Reuters
Tokyo

The Bank of Japan (BoJ) maintained its money printing drive at the current rate yesterday, but reorganised its massive stimulus programme to advance premier Shinzo Abe’s plans to prod reticent companies into boosting wages and investment.
As widely expected, the BoJ kept intact its policy target of increasing or cash and deposits in circulation by ¥80tn ($660bn) and the pace at which it buys government bonds and trust funds investing in stocks and property.
But it decided to extend the duration of the Japanese government bonds (JGBs) it buys from 10 to 12 years from 2016 and set up a ¥300bn fund to buy exchange-traded funds (ETFs) that specifically target firms actively spending on capital expenditure and wages.
BoJ Governor Haruhiko Kuroda said the fine-tuning will allow the bank to sustain or even expand stimulus more easily, dismissing the views of some investors that it was taken to avoid bolder steps as its bond buying was drying up market liquidity.
But Tokyo stock prices sank as markets saw the new steps as a return to the incremental policy style Kuroda said he had abandoned when launching his stimulus programme - dubbed “quantitative and qualitative easing” (QQE) - in 2013.
“The BoJ had never imagined that it would need to continue with QQE for this long,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley.
“Today’s step marks a shift from shock therapy to a long drawn-out struggle in its efforts to achieve 2% inflation,” she said.
Kuroda said the new steps do not amount to additional monetary easing as they did not address downside risks to the economy.
He also said they were not directly spurred by the US Federal Reserve’s decision on Wednesday to raise interest rates.
“We’ve taken steps to supplement QQE so that we can expand the programme without hesitation if needed,” Kuroda told a news conference after the decision. “Companies and households are shifting away from a deflationary mindset,” he said. “But there are discrepancies among sectors, so we want to broaden the positive momentum. We wanted to do whatever we can to support this drive.”
Yesterday’s moves underscore the BoJ’s resolve to aid Abe’s efforts to pressure companies into diverting more of their record profits to wage hikes and new investment, which are crucial to sustainably pull the economy out of deflation. The central bank said it would initially target ETFs that track the JPX-Nikkei 400 index which features companies that promote transparency and good governance.
It also said it would sell from April next year shares it had bought from financial institutions, giving it the power to buy shares of firms that meet its wage and investment standards. However, the new policy emphasis underscores the BoJ’s concerns over how long it could keep buying assets at the current rate, having already gobbled up 30% of JGBs on issue.
Kuroda attempted to keep alive market expectations of further monetary easing, stressing his resolve to take “bold action” if needed to achieve its price target.
But even yesterday’s modest measures found three dissenters on the BoJ’s nine-member board, suggesting that Kuroda may struggle to win enough votes if he were to propose expanding stimulus, some analysts say.
“This is the type of incremental move that Kuroda previously said he opposes,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “It suggests that the BoJ has reached the limit of its current quantitative easing and that it cannot expand easing by a large amount.”