The Bank of Japan is mulling a new monetary easing scheme centered on the idea of integrating two bond-buying programs to achieve its 2 percent inflation target, sources familiar with the plan said Sunday.
The idea, aimed at clarifying the central bank’s actions and enhancing its economic impact, will be discussed Wednesday at the BOJ’s first policy meeting to be chaired by new Gov. Haruhiko Kuroda, the sources said.
The BOJ is buying long-term Japanese government bonds in two ways: through regular market operations and through an asset-purchasing fund launched by former BOJ Gov. Masaaki Shirakawa in 2010. The idea is to flood the market with liquidity to lower interest rates, promote lending and stimulate the economy.
The integration of the two unconventional programs, which focus on purchasing longer-dated debt, would make it easier for the market to grasp the size of the BOJ’s JGB holdings and the pace of its purchases, the sources said. How integration will increase their effectiveness remains unclear.
Prime Minister Shinzo Abe has pressured the BOJ to be more aggressive in stoking inflation, and Kuroda plans to hammer out measures to pursue “bold monetary easing in terms of quantity and quality.”
At the meeting, the nine-member Policy Board will discuss the amount and maturities of the long-term JGBs to be purchased, the sources said.
So far, the BOJ’s monetary easing purchases have been limited to bonds that mature in three years or less. It is now exploring the possibility of extending that to five- or 10-year bonds, the sources said.
Kuroda recently said he intends to think about buying longer-dated JGBs to push down long-term interest rates, stimulate corporate capital spending and promote housing purchases to shore up the broader economy, but rates are already at rock bottom and growth remains anemic.
Although the start of “open-ended” easing scheduled to begin in 2014, the BOJ is thinking of starting sooner and expanding purchases of riskier financial assets, such as exchange-traded funds and real estate investment trusts, the sources said.
Some analysts expect the central bank to double its pace for monthly JGB purchases.
Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd., projects that the BOJ will likely buy ¥48 trillion worth of government bonds annually on a net basis.