Symptomatic Measure in Monetary Policy

Bank of Japan decided additional monetary easing in its policy meeting on Friday. Receiving consistent request from Shinzo Abe administration, the central bank reluctantly took another step for supporting Abenomics. BOJ is going to review on the effect of major monetary easing policy starting April 2013. It is obvious that the bank became a policy tool of Prime Minister Abe.

The decision of additional monetary easing was made with approval of seven members and the rest of two opposed. BOJ will expand annual amount of purchase of exchange traded fund from ¥3.3 trillion to ¥6 trillion. It was aimed to urge investors active investment by eliminating psychological uneasiness with support of the central bank. The bank also increases total amount of money rending based on U.S. dollar from ¥12 billion to ¥24 billion. It maintained the amount of annual purchase of national bond at ¥80 trillion and interest of checking deposit of private banks in BOJ at minus 0.1%.

Governor of BOJ, Haruhiko Kuroda, explained the decision as appropriate and necessary action. “In the situation of opaqueness in the world economy, the decision was made for removing negative mind in corporation or household affected by volatility in monetary market,” told Kuroda in his press conference. He stressed that negative interest policy and continuous purchase of national bond was not proved to be wrong.

Leaders of Abe administration have kept on putting pressure for additional monetary easing. “We expect BOJ to keep on making greatest effort,” told Minister of Finance, Taro Aso. “Unification between the government and BOJ is important. I think Governor Kuroda knows it,” said Minister for Economic Revitalization, Nobuteru Ishihara. Worrying about slowdown of Abenomics, Abe administration required BOJ support for additional economic incentives this fall, which would be costing ¥28 trillion at project basis.

BOJ has been maintaining “different dimensioned monetary easing” from April 2013. After highly unusual negative interest policy, BOJ realized no additional measure was remaining. Expanding purchase of ETF was one of the few choices, which actually resulted in symptomatic treatment. Japanese yen against U.S. dollar hiked as high as ¥102 on Friday with disappointment. Tokyo Stock Market showed agile move like roller coaster.

There is a negative notion in the market that BOJ monetary policy is arriving to the limit. 2% target inflation policy plan has not achieved in two years, which was the goal set at the beginning. Interest of national bond, sharing one-third of all delivery, dropped to the historical low. One cannot help imagine bankruptcy of the central bank.