Mount Fuji, Japan

Japan Monetary Policy April 2020

Japan: BoJ takes more measures to buttress the economy

At its monetary policy meeting ending on 27 April, the Bank of Japan (BoJ) loosened its monetary policy amid a rapidly deteriorating economic backdrop due to the coronavirus pandemic, which is aggravating fragility induced by the sales tax increase in October. However, the BoJ left the short-term policy rate, which applies to current account balances held by financial institutions at the BoJ, unchanged at minus 0.10%.

To help businesses affordably access finance, the BoJ announced it would substantially increase its purchases of corporate paper and bonds, and that it would strengthen the loan facility for banks that it created in March to help banks lend to businesses.

Turning to the Japanese government bond (JGB) market, the BoJ said it would increase its purchases of bonds to help stabilize the market, as the government is raising its issuances to finance increased spending. The BoJ said it would not set an upper limit to the amount of bonds it would purchase to cap the 10-year JGB yield at around 0%—this marks a change from the BoJ’s previous guidance, which stated government bonds would be purchased at an annual pace of about JPY 80 trillion.

Commenting on this change, Takashi Miwa of Nomura said: “While the decision to purchase JGBs without limit looks likely to be an effective way to signal the Bank’s willingness to coordinate with the government’s macroeconomic policies, […] with the BOJ’s options for further easing effectively limited, the decision also appears to be have been restricted to the policies the Bank is able to implement without changing its current policy framework.”

Looking ahead, the BoJ said it will “closely monitor the impact” of coronavirus on the economy and will “not hesitate to take additional easing measures if necessary”. It underlined its commitment to bringing core inflation above the 2.0% target.

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