UPDATE 2-BOJ doubles inflation target, adopts open-ended asset buying

Mon Jan 21, 2013 11:53pm EST

Related Topics

* Govt, BOJ issue joint statement to share new target
    * BOJ pledges open-ended asset buying from 2014
    * BOJ doubles inflation target to 2 percent
    * Comments from governor's briefing seen after 0715GMT


    By Leika Kihara
    TOKYO, Jan 22 (Reuters) - The Bank of Japan doubled its
inflation target to 2 percent and made an open-ended commitment
to buy assets from next year, surprising markets that had
expected another incremental increase in its $1.1 trillion
asset-buying and lending programme.
    But central bankers were divided on the new price target
with two in the nine-member board voting against setting it at 2
percent, underscoring the dilemma the BOJ faces as it struggles
to beat deflation with its depleted policy arsenal.
    The BOJ has been under relentless pressure from new Prime
Minister Shinzo Abe for bolder action to overcome deflation and
lift the economy out of recession.
    Until Tuesday, the central bank had pledged to pump 101
trillion yen ($1.1 trillion) into markets with its asset-buying
and lending programme by the end of this year, but had made no
commitment on whether to maintain the balance beyond 2014.
    At the two-day meeting that ended on Tuesday, it decided
that from 2014 it would switch to an open-ended approach of
buying a certain amount of assets each month without setting a
deadline for completing the purchases.
    From 2014, the BOJ will buy 13 trillion yen in assets each
month, including 2 trillion yen in long-term government bonds
and 10 trillion yen in treasury discount bills, the central bank
said in a statement.
    The remaining one trillion yen would be to make purchases to
maintain the balance of the BOJ's holdings of private debt
targeted under the existing asset-buying programme.
    "The BOJ will pursue powerful monetary easing by maintaining
virtually zero interest rates and purchases of financial assets
as long as it deems appropriate," the statement said.
    The BOJ issued a joint statement with the government in
which it set 2 percent inflation as its new target.As widely expected, the BOJ maintained its overnight call
rate target in a range of zero to 0.1 percent by a unanimous
vote. The decision to adopt an open-ended asset buying programme
was also made by a unanimous vote.
    The yen has dropped 13 percent against the dollar in
the past two months to hit a two-and-a-half-year low on
expectations Abe will force the BOJ into bolder action. Tokyo
stocks have jumped by a fifth on the view the weaker yen
will boost the export earnings of the likes of Nissan Motor Co
 and Canon Inc.
    The dollar fell more than one yen from its session high on
Tuesday after initial excitement about the Bank of Japan's
adoption of a 2 percent inflation target and its open-ended
commitment to asset purchases petered out. 
    The Nikkei share average dropped 0.8 percent, erasing gains
made immediately after the Bank of Japan announcement.
 
    For the government's part, Abe has promised a boost to
spending to help get the economy back on its feet. Abe's
stimulus may give the economy only a temporary boost at best
unless he follows through with politically more difficult
economic reforms, such as deregulating protected sectors such as
agriculture, analysts say.
    Still, Abe is likely to keep pressure on the BOJ for more
stimulus even after Tuesday's meeting at least until an upper
house election expected in July.
    Abe is also expected to try to install a central bank
governor more sympathetic to aggressive monetary policy easing
when incumbent Shirakawa's term ends in April. Shirakawa has
maintained that monetary policy alone can not pull the economy
out of deflation.
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