The Bank of Japan on Friday eased monetary policy by boosting the size of its asset purchase program by ¥5 trillion, saying the move will “better ensure the return of Japan’s economy to a sustainable growth path with price stability.”
The decision raises the size to ¥70 trillion, which will be used to purchase financial instruments, including Japanese government bonds.
The bank’s second easing in three months is an effort to support economic activity by encouraging a decline in longer-term interest rates and risk premiums, and by bolstering market stability, the BOJ said in a statement following the two-day Policy Board meeting.
The likelihood that the euro crisis will trigger a major economic downturn is declining, BOJ Gov. Masaaki Shirakawa told a news conference after the meeting.
Monetary policy was eased to “further make certain that Japan’s economy continues on the recovery path,” he said. “We want to maintain the good monentum.”
The easing move “was somewhat of a surprise, but compared with the previous one in February, it is of a smaller scale,” said Hideo Kumano, executive chief economist at Dai-ichi Life Institute.
“The market’s expectations were much higher,” he said, explaining that the impact of Friday’s policy shift will likely be minor.
The BOJ on Friday also revealed that it amended the terms and conditions of the asset purchase program, including by increasing the amount of government bonds and Japan Real Estate Investment Trusts it will purchase. It said the BOJ will buy bonds with a remaining maturity of one year or more and up to three years, instead of two.
The expansion of the asset purchase program to ¥70 trillion will be finished by the end of June 2013, it said.
The latest bout of monetary easing was decided by a unanimous vote at the BOJ Policy Board, which also collectively agreed to maintain its key interest rate at around zero to 0.1 percent.
On the state of the global economy, the central bank pointed out that the risk of Europe’s sovereign debt issues has decreased while the U.S. economy continues to recover.
The BOJ said such developments are indicating that it “has become increasingly evident that Japan’s economy is shifting toward a pickup phase as positive developments have become widespread.”
Economic upturns overseas as well as reconstruction-related demand should lead Japan’s economy to a moderate recovery path, it said.
The central bank also issued its seasonal economic outlook report Friday, projecting 0.2 percent gross domestic product growth in fiscal 2011 instead of the 0.4 percent predicted in January.
The BOJ also upgraded its GDP growth forecast for fiscal 2012 to 2.3 percent from 2.0 percent, and predicted growth of 1.7 percent in fiscal 2013.