Japanese yen in circulation to double: BoJ

Japanese yen in circulation to double: BoJ
PHOTO: Japanese yen in circulation to double: BoJ

The Bank of Japan decided at its policy meeting Thursday to carry out new quantitative and qualitative monetary easing measures, including the doubling of the amount of money in circulation in two years.

Through the central bank's aggressive purchases of various types of assets, including longer-term maturity government bonds, the bank hopes to realise the ambitious 2 per cent inflation target it adopted in January.

It will be the first quantitative monetary easing measure to be taken by the central bank since March 2006.

Specifically, the central bank will purchase longer-term government bonds, including those with a maturity of 40 years, from financial institutions, while increasing its purchases of financial products with price fluctuation risks, such as exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs), by about 1 trillion yen (S$12.7 billion) a year.

The two-day policy meeting that ended Thursday was the first since the bank's new governor, Haruhiko Kuroda, assumed the post. Akira Amari, the minister for economic and fiscal policy, represented the government in the meeting.

At a press conference following the meeting, Kuroda explained the reasoning behind the central bank's decisions.

To promote the quantitative easing measure, the bank will aim to shift the focus of its monetary easing policy from interest rates to the money supply, which is the amount of money in the economy, consisting of cash in circulation and commercial banks' reserves with the central bank.

In a document released the same day, the central bank said it will implement monetary easing measures that will be on different qualitative and quantitative levels from the current ones, making clear its stance on bailing the national economy out of a protracted period of deflation.

The central bank pours money into the market by purchasing financial assets such as government bonds from financial institutions.

Currently, the central bank limits its purchase of government bonds to those with maturities longer than one year and up to three years. By purchasing longer-term bonds with maturities of up to 40 years, the central bank aims at lowering long-term interest rates.

The bank expects to increase the balance of long-term government bonds from 89 trillion yen as of the end of 2012 to 190 trillion yen at the end of 2014.

ETFs and J-REITs are products deemed more risky than government bonds, because of their possible price fluctuations.

The central bank currently purchases government bonds through a fund designed to purchase assets for the purpose of monetary easing, and through its outright purchase operation, an ordinary measure it takes to put money into circulation. The central bank will abolish the fund designed to purchase the government bonds and integrate it through the system of outright purchase.

Through these measures, market players will be able to more easily ascertain the pace at which the central bank is purchasing government bonds and how many such bonds it has at any given time.

As part of the integration measures, the central bank will temporarily suspend the operation of its internal rules designed to cap the amount of long-term government bonds it holds to less than the issuance of its notes.

This website is best viewed using the latest versions of web browsers.