Bank of Japan expands monetary easing by lifting bond purchase cap

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The Bank of Japan (BOJ) accelerated its emergency monetary easing on Monday, lifting the cap on its buying of government bonds and increasing purchases of other assets, while also cutting its growth forecasts.

“The spread of coronavirus is having a grave effect on our economy,” said central bank governor Haruhiko Kuroda. “In order to ensure the stability of bond markets and sustain the whole yield curve at a low level, we agreed that even more proactive bond-buying is appropriate at present.”

The BOJ board approved the change with eight votes against one and also kept its benchmark overnight rate at minus 0.1 percent. The central bank also adjusted downward its economic forecast, expecting a three to five percent fall in GDP this year — still lower than many private forecasts.

Lifting the bond purchase limit, however, seems to be of little practical consequence, since in the past two years the bank has remained significantly under its earlier annual maximum of 80 trillion yen (€683 billion), buying government bonds at a pace of some 20 trillion yen a year.

The BOJ’s decision comes in week when both the Federal Reserve and the European Central Bank are scheduled for their own meetings. Both of them have taken decisive action at emergency meetings in recent weeks, which seems to indicate that the Japanese central bank is just jumping onto the bandwagon.

Kuroda, who has been the helm of the BOJ for ten years, has apparently also admitted defeat in his years-long fight to reverse Japan’s deflationary trend.

Kuroda said the BOJ was committed to further fight the impact of the coronavirus pandemic, which in his assessment could have a worse impact on the global economy than the 2008 collapse of Lehman Brothers.

“The current crisis could have a bigger negative impact than the Lehman shock. The government and the central bank obviously need to work together, particularly at a time like this,” Kuroda said.

Japan expanded a state of emergency this month that advises citizens to stay home and businesses to close, worsening the economic outlook.

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