BOJ sets goal for inflation at 1 percent / Asset purchase program gets 10 tril. yen boost

The Yomiuri Shimbun

The Bank of Japan on Tuesday decided to set an inflation goal of 1 percent and further eased its monetary policy by raising the cap of its asset purchase program by 10 trillion yen to 65 trillion yen.

During a two-day policy meeting that ended Tuesday, the nine-member Policy Board voted unanimously on the measures amid growing uncertainty over the nation's economy due to Europe's debt crisis and other concerns.

A dominant view in the markets was that the Bank of Japan would postpone such actions as the yen's rapid appreciation has somewhat abated.

However, in the wake of gloomy earnings reports from electronics manufacturers and other companies, the central bank took fresh monetary easing steps for the first time since Oct. 27.

In a statement issued after the policy meeting, the central bank said it "has judged it necessary to further support recent positive developments from the financial side and better ensure the economy's return to a moderate recovery path."

The cap for purchasing government bonds and corporate bonds in the asset purchase program was set at 55 trillion yen. The central bank has already purchased about 43 trillion yen of financial assets and planned to purchase the remaining 12 trillion yen worth by the end of this year.

The 10 trillion yen increase in the program will be used for the purchase of long-term Japanese government bonds, the central bank said.

By buying assets and injecting more money into financial markets, the central bank aims to encourage financial institutions to boost loans to companies for expanding operations such as building factories.

During the meeting, the central bank's policymakers also decided to keep a virtually zero interest rate policy, leaving the key rate--the uncollateralized overnight call rate--at around zero to 0.1 percent.

As for its monetary policy, the bank set "the price stability goal in the medium to long term."

Previously, it did not use the term "goal" and instead mentioned an "understanding of medium- to long-term price stability."

It had said the understanding on the basis of a year-on-year rate of change in the consumer price index is "a positive range of 2 percent or lower, centering around 1 percent." The bank had said it would keep a virtually zero interest rate policy until this target was in sight.

In Tuesday's monetary policymaking meeting, however, the central bank said it aims to achieve "the goal of 1 percent in terms of the year-on-year rate of increase in the consumer price index for the time being."

The bank "will pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the Asset Purchase Program mainly through the purchase of financial assets...until it judges that the 1 percent goal is in sight," the statement said.

The U.S. Federal Reserve Board has set its long-term inflation target at 2 percent and plans to keep the current zero interest rate policy at least through late 2014.

In contrast, the Bank of Japan failed to refer to specific targets and the timing of ending its measures, sparking criticism at home with one lawmaker saying in Diet deliberations, "It's hard to comprehend."

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BOJ's plan for economic revival

Overview of decisions announced Tuesday by the Bank of Japan following its monetary policy meeting:

-- Raise by 10 trillion yen the cap on its asset purchase program from 55 trillion yen to 65 trillion yen.

-- Leave the uncollateralized overnight call rate untouched at around zero to 0.1 percent.

-- Set a medium- and long-term "price stability goal" and review it annually.

-- The goal should be set at a maximum of 2 percent in terms of the year-on-year rate of increase in the consumer price index. It will initially be set at 1 percent.

-- Promote virtually zero-interest call rates and other monetary-easing policies until the central bank judges that the 1 percent goal is in sight.