UPDATE: 2:50 a.m. EST -- Speaking at a news conference after the Bank of Japan announced a reorganization of its massive stimulus program, BoJ Governor Haruhiko Kuroda said the new steps do not amount to expanded monetary easing.
“We don't see economic and price conditions undershooting our estimates, so today's steps aren't monetary easing,” Kuroda reportedly said, referring to the BoJ’s surprise decision to launch supplementary measures to boost growth.
“Rather, we took these steps to ensure that we can continue with QQE [Quantitative and Qualitative Easing] smoothly or expand it if necessary to achieve 2 percent inflation at the earliest date possible.”
Kuroda also said that the U.S. Federal Reserve’s decision to hike interest rates was “positive for the global economy.”
The Bank of Japan (BoJ) kept its monetary policy and stimulus target unchanged Friday, even as it outlined supplementary measures for its massive quantitative easing program. In a statement released after its latest policy meeting, the central bank announced that it will increase its exposure to longer-term government bonds and step up the purchase of exchange-traded funds (ETFs).
In recent months, Japan’s economy has consistently fallen short of the BoJ’s optimistic projections, as a drop in domestic consumption, coupled with a sharp economic slowdown in China, continues to weigh on the country's growth. Additionally, prevailing low oil prices have also forced the BoJ to repeatedly push back the deadline for achieving its target of 2 percent inflation. The new ETF purchase program will begin in April.
“The Bank will establish a new program for purchasing ETFs at an annual pace of about 300 billion yen, in addition to the current program of ETF purchases under which their amount outstanding will increase at an annual pace of about 3 trillion yen,” the BoJ said, in the statement. “Under this new program, the Bank will purchase ETFs composed of stocks issued by firms that are proactively making investment in physical and human capital.”
The central bank also said it will lengthen the average remaining maturity of the Japanese government bonds it purchases to seven to 12 years from the beginning of next year, from the current seven to 10 years. It will also maintain its overall target of asset purchases at an annual pace of around 80 trillion yen ($656 billion). Following the announcement, the 10-year Japanese government bond yield fell to 0.28 percent, its lowest level since April.
While the decision to continue expanding the monetary base at an annual pace of 80 trillion yen was widely expected, the announcement of the additional measures caught many by surprise. Shares on Japan’s Nikkei 225 initially jumped, before plummeting sharply and trading down 1.4 percent. The yen, already facing downward pressure following the U.S. Federal Reserve’s decision to increase interest rates earlier this week, fell to as low as 123.57 against the dollar, from roughly 122.45 before the announcement. It was last at 121.86 at 1:22 a.m. EST.
BoJ Governor Haruhiko Kuroda is scheduled to hold a press briefing later Friday, when he is expected to explain the reasoning behind the decision to extend the government bond maturities and increase ETF purchases.