BoJ Minutes: Asset Purchase Program Was Positive

The members of the Bank of Japan's monetary policy board believed that the expansions in their asset purchase program had a positive effect on the financial markets, minutes from the bank's meeting on March 12 and 13 revealed on Friday.

The minutes also noted that some members believe CPI to be heading for a mild upward trend and away from deflation.

"Japan's economy currently confronts the long-term structural challenge of declining trend growth rates amid rapid population aging," the minutes said. "Tackling this challenge is crucial for establishing a new basis for economic growth. The goal of overcoming deflation will be achieved through such efforts to strengthen growth potential and via support from the financial side."

At the meeting, the BoJ decided to expand its loan scheme aimed at supporting economic growth by JPY 2 trillion. At the same time, the central bank kept its monetary policy unchanged. The measure was largely aimed at tackling deflation and establishing a new basis for economic growth.

The total amount of loans available through the Growth-Supporting Funding Facility both in terms of the dollar and the domestic currency will now increase by JPY 2 trillion to 5.5 trillion yen.

The bank decided to expand the main Growth-Supporting Funding Facility, which was introduced in June 2010 to support growth industries, by JPY 500 billion to JPY 3.5 trillion.

"Japan's economic activity has remained more or less flat, although it has shown some signs of picking up," the minutes said. "As for domestic demand, business fixed investment has been on a moderate increasing trend aided by the restoration of disaster-stricken facilities, and private consumption has firmed up due in part to the effects of measures to stimulate demand for automobiles. On the other hand, exports and production have remained more or less flat, mainly due to the effects of the slowdown in overseas economies and the yen's appreciation."

The BoJ will also extend the deadline for applications for new loans under the main growth fund by two years to March 31, 2014. The funding is through equity investment and asset-based lending.

The bank said it will also launch a new arrangement for loans denominated in US dollars, totaling JPY 1 trillion yen.

These dollar loans, largely intended for investments and loans denominated in foreign currencies, will be funded using the dollar reserves already held by the central bank.

Additionally, the bank will introduce JPY 500 billion loans for small-lot investments and loans. Investments and loans worth JPY 1 million or more but less than JPY 10 million are referred to as small-lot investments and loans.

The deadline for new applications for loans under the funds-supplying operation to support financial institutions in disaster areas was extended by one year to April 30, 2013, although the ceiling was maintained at the existing JPY 1 trillion.

"Overseas economies still have not emerged from a deceleration phase on the whole but some improvement has recently been observed in the U.S. economy and the sluggish European economy has stopped deteriorating. Global financial markets have also regained some stability," the minutes said.

The bank saw no need for altering its stance with respect to the interest rate and asset purchase program. The uncollateralized overnight call rate remained at around 0 to 0.1 percent and the asset purchase and credit facility were also unchanged at JPY 30 trillion and JPY 35 trillion respectively.

During the meeting, Policy Board member Ryuzo Miyao proposed to increase the amount of the Asset Purchase Program by about JPY 5 trillion yen, which would bring the total volume of the Program to about JPY 70 trillion. The proposal was voted down by the other eight members.

"Japan's economy is expected to gradually emerge from the current phase of flat growth and return to a moderate recovery path as the pace of recovery in overseas economies picks up, led by emerging and commodity-exporting economies, and reconstruction-related demand after the earthquake disaster gradually strengthens," the minutes said.