Bank of Japan Details Plan to Buy Assets
By REUTERS
Published: October 28, 2010

TOKYO (Reuters) — The Bank of Japan made no major policy moves at its meeting on Thursday, but said that a plan to spend 5 trillion yen ($61 billion) buying assets was a “strong option” if the outlook for the economy sharply deteriorated.

The central bank also moved up its next policy review to begin Nov. 4, right after the Federal Reserve’s meeting. Markets took that schedule change as a sign that the bank was ready to act swiftly if there is a rush to sell dollars once the Fed moves, as expected, to buy more bonds to stimulate the economy.

The governor of the Bank of Japan, Masaaki Shirakawa, said, however, the change of the date had nothing to do with the Fed and was aimed at speeding up the roll-out of the bank’s asset buying plan, particularly purchases of less conventional instruments.

“If there is a big change in our economic and price outlook, expanding it is a strong option,” Mr. Shirakawa told reporters when asked whether the bank would increase its asset purchases.

The bank announced the plan this month when it also pegged its benchmark rate from 0 to 0.1 percent and vowed to keep it near zero until the end of deflation was in sight.

Its updated price and growth forecasts were slightly more optimistic than markets had expected, but still showed it could take perhaps two years before prices started rising at a pace the central bank wanted to see before lifting rates.

While new economic powers like Brazil, China and India have swiftly recovered from the global financial crisis and the economic slump that followed, Japan, the United States and other rich nations have struggled to sustain growth.

Furthermore, the side effects of the trillions of dollars they spent on economic stimulus and record low lending rates have aggravated strains in currency markets, causing fears of currency and trade conflict.

On Thursday, the Bank of Japan provided details of its asset purchasing plan, which would begin with buying government debt next month and corporate bonds and commercial paper possibly in December.

The central bank said it would buy 1.5 trillion yen in long-term government bonds and 2 trillion yen in short-term government securities. It also plans to spend 1 trillion yen on commercial paper and corporate debt.

The Fed is expected to extend its government bond buying scheme next week to prop up the sputtering American economy.

The prospect of more dollars flowing into markets has driven the American currency to near record lows against the yen, prompting Japanese exporters like Toyota and Nissan to talk of a looming crisis. Speculation that the Fed will opt for piecemeal fund injections rather than a single big operation has given the dollar some respite, but a more aggressive action could knock it down again and force the Bank of Japan’s hand.

In its twice-yearly economic report, the bank cut its growth forecast for the fiscal year to March 2012 to 1.8 percent, from the 1.9 percent predicted three months ago, less than markets had expected.

It also predicted prices would inch up 0.1 percent in the next fiscal year and 0.6 percent thereafter, prompting some analysts to wonder whether the central bank was too optimistic.