TOKYO (Reuters) - The Bank of Japan doubled its asset buying scheme to 10 trillion yen ($122 billion) and supplied record funds to banks on Monday to shore up confidence in an economy hit by the triple blow of a massive quake, a tsunami and a nuclear emergency.
The central bank said its action was a pre-emptive step after markets swooned at the shock of Friday’s 8.9 magnitude earthquake and a tsunami that may have killed more than 10,000 and has left millions without power, water or homes.
Below are some key points on the BOJ’s decision, made at a rate review that was cut short by one day in the aftermath of the quake.
The doubling of the BOJ’s asset buying fund came as little surprise to markets, although the timing may have caught some off guard.
What drew more attention was the fact that the increase in purchases was bigger for risk assets than for government debt.
The BOJ decided to boost buying of risk assets -- commercial paper, corporate bonds, exchange-traded funds and real estate investment funds -- by 3.5 trillion yen, against an increase of just 1.5 trillion yen for government bonds and short-term securities.
The BOJ will complete the purchases by June 2012, longer than the previous deadline of the end of this year, reinforcing its commitment of maintaining its ultra-easy policy for as long as necessary.
Governor Masaaki Shirakawa told a news conference that the focus of Monday’s decision was for the central bank to take on more risk and prevent investors from fleeing risky assets in the wake of the devastating earthquake.
The BOJ kept its assessment of the economy broadly intact, saying it was sticking to its view that the economy will resume a moderate recovery later this year.
But it decided to act preemptively against risks to growth posed by damage from the quake, though there is very little data to measure it at this point.
Shirakawa said the BOJ will scrutinize economic data that becomes available at its rate reviews next month -- one on April 6-7 and another on April 28 -- as well as market conditions at the time in deciding whether to ease policy further.
He also said worries about the quake’s impact on business and household sentiment was among the key factors that drove the BOJ into easing policy on Monday.
That means the focus will be on the BOJ’s quarterly tankan business sentiment survey, due out on April 1, in gauging whether the BOJ will ease further.
The BOJ bought 2.3 trillion yen worth of assets using the 5 trillion yen fund as of March 10.
Below is a breakdown of what the BOJ will buy more of after Monday’s decision to boost the fund’s size to 10 trillion yen:
Long-term government bonds: 0.5 trillion yen
Short-term government securities: 1.0 trillion yen
Commercial paper: 1.5 trillion yen
Corporate bonds: 1.5 trillion yen
Exchange-traded funds (ETF): 0.45 trillion yen
Real-estate investment trust (REIT): 0.05 trillion yen
*Purchases of ETFs and REIT need approval by the government.
”Stock prices have fallen sharply on uncertainty over the outlook for Japan’s economy ...
”Today’s step is aimed at preventing a risk-averse stance from strengthening in the markets for commercial paper, corporate bonds and stocks ...
”Even if bids for funds fall short of offers, some financial institutions may not have as much funds as they need. So even if bids fall short of offers, we will continue to (pump money into the banking system) if necessary ...
“The planned power outage will affect output to no small degree. But we’re not sure yet what the scale of the impact will be.”
”I would like the BOJ to keep in close contact with the government and ensure it provides ample liquidity to secure market stability and smooth settlement of funds ...
“(Private-sector) sentiment is deteriorating after the earthquake, and that could cause risk aversion in financial markets. I think (the BOJ) made the appropriate decision to increase its purchases of risk assets in particular so as to ward off such concerns.” ($1 = 81.915 Japanese Yen)
Reporting by Leika Kihara; Editing by Michael Watson