April 28, 2020

Japan expanded its monetary policy again

HIGHLIGHTS:

Following other major central banks, the Bank of Japan (BoJ) decided today to ease its monetary policy again. The main measures are to:
o scrap the limits on JGB purchases,
o increase CP and corporate holding limits to ¥20 tr from ¥7 tr previously,
o strengthen the Special Funds-Supplying Operations by expanding the collateral to ¥23 tr from ¥ tr previously.
The BoJ’s yield curve control policy remains unchanged.
Moreover, the BoJ revised down its growth and inflation projections. GDP growth is now seen in a range between -5.0% and -3.0% for the fiscal year 2020 (FY2020), which we consider reasonable. Regarding inflation, the BoJ has given up to reach its 2% inflation target even by FY2022.
With scrapping the limits on JGB purchases, the BoJ is de facto moving further towards helicopter money. This could prove important for financing possible upcoming more fiscal support measures. However, for the time being, buying will be guided by the bank’s yield curve control policy as the BoJ cannot control volume and price as the same time.
Regarding the corporate support, the BoJ took the right step to help avoiding a wave of bankruptcies, although CPs and corporate bonds are less important in financial intermediation in Japan than compared e.g. with the US.