The Bank of Japan (BOJ) says it will only buy a necessary amount of Japanese government bonds
The bank official said the decision was only temporary until they reached a target inflation rate of 2%.
The BOJ emphasized the nature of supporting lending to small businesses as they face greater financing challenges
The Bank of Japan (TYO: 8301) (BOJ) strengthened its monetary policy stimulus at a monetary policy meeting on Monday. The one-day meeting was aimed at supporting the government’s efforts to cushion the economy against the impact of the Covid 19 pandemic.
At the end of the meeting, bank officials pledged to buy only “a necessary amount of Japanese government bonds without setting a cap”, following the example of the Federal Reserve, which last month committed to buying government bonds only “in the necessary amount” to boost the country’s economy.
Several markets were excited by the news, with the Nikkei Stock Average (NI225) soaring to close 2.7% higher. The Yen also grew bullishly, closing yesterday at 107.22-23, up from 107.70-71 last Friday. European markets also rallied, with some stocks leaping in early trading.
In an interview with reporters, the governor of the Bank of Japan, Haruhiko Kuroda, emphasized the fact that the new approach does not in any way secure government debt.
“The BOJ will buy JGBs as much as necessary. This is not a permanent measure,” said Governor Kuroda. According to the governor, the measure should not be permanent and should only last as long as necessary to reach the bank’s 2% inflation target.
The Bank of Japan also hopes to triple its planned corporate and commercial papers to reduce the financing problems of large corporations. The bank has further relaxed its collateral policy and allowed commercial banks to benefit from its program to offer cheaper financing to small and medium-sized enterprises.
Governor Kuroda underlined the nature of support for small businesses, saying they face far greater financing challenges than during the Lehman collapse.
The central bank’s move to adjust its policies is part of a global plan to support small businesses and households most affected by the coronavirus pandemic. The Federal Reserve Bank has already reached an agreement with commercial banks to offer affordable credit to small businesses and sell the same facilities to the Feds.
In Europe, the European Central Bank has agreed to purchase non-investment-grade bonds for commercial banks as a temporary measure to encourage commercial borrowing and lending.