The Bank of Japan will likely soon adopt an economic stimulus package, including additional monetary easing measures, aimed at achieving a 1-percent inflation goal and countering the country's chronic deflation, sources said.
At a news conference on April 10, after a two-day Policy Board meeting, BOJ Governor Masaaki Shirakawa indicated that the next meeting, scheduled for April 27, will be crucial in formulating monetary policy.
The BOJ is expected to inject more funds, between 5 trillion yen and 10 trillion yen ($61.87 billion), into its asset purchase program that purchases government bonds and other assets from financial institutions. This pump priming measure will flood financial markets with more money.
The bank will also consider purchasing government bonds with maturity dates longer than two years to make it easier for businesses to take out loans, the sources said. The asset purchase program is currently aimed at bonds with up to two-year maturity dates. The bank’s purchase of long-term bonds is expected to help keep long-term interest rates low.
Since its monetary easing measures have failed to push up consumer prices, the BOJ is increasingly relying on a program targeting the robust growth of emerging economies.
On April 10, the central bank disclosed details of a dollar loan plan worth 1 trillion yen that it decided to introduce at a meeting in March.
Loans will be available for a maximum of four years for financial institutions extending loans to businesses that are trying to set up operations overseas.
Regardless of its creditworthiness, a financial institution will be eligible to loan up to $1 billion as long as it pledges its holding of government bonds as collateral.
“It will be a natural choice for Japanese businesses to establish bases in foreign markets if that is where demands are growing,” Shirakawa said, underscoring the merits of the loan program.
In response to concerns that the BOJ's efforts could further hurt Japanese manufacturers, the bank will limit the loans to projects that will contribute to more investment and job creation in the Japanese market. The loans will also be extended if they help improve the research and development capabilities of businesses based in Japan.
At the next Policy Board meeting, the BOJ will discuss strategies to achieve the 1-percent price stability goal it announced in February to lift the nation out of its chronic deflation.
When the BOJ announced the goal and decided to pump another 10 trillion yen into its 55-trillion-yen asset purchase program, Shirakawa said, “The bank will take action, not just make a vow.”
The Policy Board discussions on April 27 will revolve around price trends in fiscal 2012-13 in compiling its report on the Outlook for Economic Activity and Prices, which is released in April and October. The current estimates for the inflation rate is 0.1 percent for fiscal 2012 and 0.5 percent for fiscal 2013.
The projected rate is expected to be revised in the outlook report, given that the economy appears to head toward recovery and that crude oil prices are soaring, according to the sources.
At the two-day Policy Board meeting that ended April 10, the BOJ kept its monetary policy unchanged and maintained the key policy interest rate at effectively zero percent.
BOJ members stuck to their outlook that the Japanese economy will be back on a recovery track by the first half of the current fiscal year, which began in April.
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