BOJ eyes open-ended asset buying, agrees new inflation goal

Fri Jan 18, 2013 11:48am EST
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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's government and central bank have agreed to set 2 percent inflation as a new target next week, when the Bank of Japan will also consider making an open-ended commitment to buy assets until the target is in sight, sources familiar with the BOJ's thinking told Reuters.

The central bank will also discuss at its policy review on Monday and Tuesday, scrapping interest it pays on banks' reserves, a move that will nudge money market rates to zero, according to the sources.

Faced with relentless pressure from Prime Minister Shinzo Abe to do more to pull Japan out of deflation, the BOJ is expected to double its inflation target and ease policy again at a two-day policy review that ends on Tuesday.

While the most likely option would be for the BOJ to top up its long-standing asset buying programme, central bankers will likely debate other measures such as open-ended asset purchases, to live up to market expectations for bolder monetary stimulus.

Any new initiatives would surprise investors, possibly putting the yen under more selling pressure and further boosting Japanese stocks, which have hit their highest levels in nearly three years on hopes of bolder policy measures.

The BOJ and the government are finalizing a joint statement they plan to issue on Tuesday, which would include 2 percent inflation as the bank's policy goal, deputy economics minister Yasutoshi Nishimura told Reuters.

"Governor (Masaaki) Shirakawa has been saying that 1 percent inflation would be in sight before long but we have not reached that stage yet," Nishimura said.

"If we share 2 percent inflation as a common objective, we expect the BOJ to do something very aggressive."   Continued...

People walk past a street covered with snow in front of the Bank of Japan in Tokyo January 15, 2013. REUTERS/Kim Kyung-Hoon