Japan central bank expands asset purchases, tweaking stimulus to spur corporate spending

TOKYO – The Bank of Japan tweaked its lavish stimulus program Friday in a well-timed move that spotlights pressures on companies to do more to support growth by raising wages and investing in factories and equipment.

This week, the U.S. central bank raised its key interest rate by a quarter percentage point, signalling confidence in the U.S. recovery at a time when Japan is still struggling to re-ignite growth after years of stagnation.

The BOJ said Friday after a scheduled policy meeting that it will expand purchases of shares in exchange traded funds, for companies that increase hiring and investment, by 300 billion yen ($2.4 billion) from the current 3 trillion yen ($24 billion).

Coming so soon after the Fed’s announcement, the BOJ’s policy meeting drew more than the usual amount of speculation over whether more stimulus was planned.

The news briefly pushed the Nikkei 225 stock index up about 500 points, or more than 2 per cent, though it lost those gains to close down 1.9 per cent. The dollar also jumped against the Japanese yen, to over 123 yen to the dollar, before falling back to 121.70, down from its previous close of 122.58.

The BOJ has been pumping tens of trillions of yen (trillions of dollars) a year into the economy by buying up government bonds and other assets. The overall scale of the program remains intact.

The central bank has yet to make much progress toward a 2 per cent inflation target that might signal the recovery has taken hold.

The BOJ’s policy tinkering sends a message to companies. It also is meant to show the central bank still has room to manoeuvr despite the near-zero interest rates, Masaaki Kanno of JPMorgan said in a research note.

“We believe that today’s fine tuning of the monetary policy is an answer from the BOJ that there still exists the tools of additional easing,” he said.

Thanks to the unprecedented barrage of “quantitative easing” by the BOJ, corporate profits have ballooned to record levels. A weak Japanese yen swells the value of companies’ overseas profits when brought back to Japan.

Those cash piles exceed 300 trillion yen ($2.44 trillion), or about 60 per cent of Japan’s GDP.

With the success of his “Abenomics” stimulus strategies at stake, Prime Minister Shinzo Abe has stepped up pressure on corporations to spend more of that money on raising wages and investing in factories and equipment.

Friday’s move is meant to create fresh incentives to do so.

The BOJ’s said its purchases will be of ETFs that include shares in companies that are “proactively making investment in physical and human capital.”

Exchange traded funds are investment funds traded on stock exchanges that track an index or assets such as shares, bonds and commodities.

The central bank also is designating a similar category of such companies for special support for lending and has extended a special loan support program that largely is aimed at companies hit by the 2011 disasters in northeastern Japan.

The BOJ also decided to extend the average maturity of the government bonds it buys to 7-12 years from 7-10 years and to increase its real estate investment trust purchases.

It also extended to 10 years the amount of time it will take to sell off stocks it has purchased as part of its asset buying program, to help minimize the impact on share prices. The initial period was five and a half years.


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This story has been corrected to show that the increase in ETF purchases is 300 billion yen.