The Bank of Japan Policy Board on Friday left its monetary policy unchanged for the month and decided to introduce by the end of May a measure to stabilize the government bond market.
After a two-day meeting, the board agreed to maintain continuous liquidity in the financial market to support the nation’s economic recovery and to fight deflation.
As a benchmark for its easy monetary policy, the nine-member board decided unanimously to keep its target for the outstanding balance of banks’ deposits at the central bank within a range of 30 trillion yen to 35 trillion yen.
“We decided to maintain the monetary policy after considering the increase in corporate incomes and the signs of recovery in consumption as indicated in the ‘tankan’ survey (for March),” BOJ Gov. Toshihiko Fukui said later in the day. The tankan is a quarterly survey of business sentiment.
Upon questioning, Fukui said the financial market’s strength will enable it to resist wide fluctuations following the abduction of three Japanese civilians in Iraq.
The board decided to launch a “securities lending” program under which the BOJ will temporarily place part of its holdings in Japanese government bonds on the market. The measure is aimed at ensuring that specified JGBs in short supply remain available.
Under the measure, the BOJ said, it will buy back JGBs from the market by the end of the next business day.
“The BOJ will be able to supply the volume of JGBs necessary to stabilize the market, because the central bank is the largest holder of JGBs,” said Hideo Kumano, a senior economist at Dai-ichi Life Research Institute Inc.
Each month the BOJ purchases an average of 1.2 trillion yen worth of JGBs on the market, while the Finance Ministry issues 1.9 trillion yen in outstanding 10-year JGBs, Kumano said.
The JGB stabilization measure reflects growing concern among BOJ policymakers over recent rises in long-term interest rates. If the JGB market stabilizes, the government can reduce its financial burdens stemming from rising bond yields, said Yasunari Ueno, chief economist at Mizuho Securities Co.
“The BOJ decided to introduce securities lending to increase the attractiveness of the government bond market as well as to support rebuilding the government’s fiscal condition,” Ueno said.