BOJ Sets Price Target as Contraction Spurs Easing

Japan’s central bank unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and set an inflation target after an economic slide fueled criticism it has been slower to act than counterparts.

An asset fund was increased to 30 trillion yen, with a credit lending program at 35 trillion yen, the Bank of Japan said in Tokyo today. The BOJ also said that it will target 1 percent inflation “for the time being.”

Stocks rose and the yen weakened against the dollar as the central bank expanded stimulus for the first time since October to revive an economy that shrank an annualized 2.3 percent last quarter. Lawmakers had urged extra efforts to counter deflation after the Federal Reserve adopted a 2 percent inflation target and the European Central Bank expanded its balance sheet.

Today’s decision “shows the BOJ bowed to political pressure,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “There will probably be limited impact on the yen’s gains.”

The overnight lending rate stayed between zero and 0.1 percent. Twelve of 13 economists surveyed by Bloomberg News had anticipated no change in stimulus or rates.

Japan’s bonds rose, sending the yields on five-year securities down two basis points, or 0.02 percentage point, to 0.32 percent as of 3:56 p.m. in Tokyo, matching the lowest since November. The benchmark 10-year yield also declined two basis points to 0.96 percent.

The BOJ’s price framework is similar to that of the Federal Reserve, Shirakawa said at a press conference in Tokyo today. He also said the BOJ’s decision wasn’t in response to government pressure.

Source: Bloomberg