Bank of Japan approves open-ended stimulus program

Bank of Japan approves open-ended stimulus program

Bank of Japan aligns with the general trend set by its international counterparts and extends the monetary stimulus.

BOJ announced that it pledges to buy an unlimited number of bonds to keep the borrowing costs low as a measure against the novel virus. The bank's governor, Haruhiko Kuroda, declared that "the spread of the coronavirus at home and abroad is inflicting a severe impact on Japan’s economy.” This move comes just one week after the bank increased the stimulus package to 1.1 trillion yen.

As a future move, the bank cut the economic forecast, and it predicts that the inflation target set at 2% will probably happen in three years, as the uncertainty is high.

Moreover, to ease the corporate funding strains, the BOJ will increase the maximum amount of corporate bonds and commercial debt to $186 billion (20 trillion yen). Annually, the bank will buy government bonds worth 80 trillion yen. The long-term interest rate will remain at 0%.

To fund the stimulus package, the BOJ will issue more bonds and increase the purchase of government bonds and short-term securities.

The central bank offered to pay an interest of 0.1% to financial institutions to encourage taking advantage of the loan program for combating the pandemic. The short-term interest rate is set at -0.1%, while the 10-year bond yields is around 0%.

Although this is a necessary move to ease the pain caused by the pandemic, it is also risky as Japan is close to recession. Japan is quick in adopting easing measures for crises, but it is not so fast when it needs to boost economic growth. For example, during the 2008-2009 crisis, the government released a stimulus worth 14% of the GDP which made the economy shrink 6.5%. This year's package is 20% of the GDP, and the experts expect a contraction of 5%, which can make Japan go into recession.

The announcement made Japan225 gain 2.71%. UDS/JPY traded at 107.15.

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Sources: reuters.com, nytimes.com, cnbc.com

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The information presented herein is prepared by CAPEX.com and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience or current financial situation.

Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance is not a reliable indicator of future results.