Bank of Japan to Buy Lowered-Rated Corporate Debt

The Bank of Japan brought forward the date of its next policy meeting, a move to accelerate stimulus for a slowing economy that prompted a jump in Japanese bond prices on speculation of further easing steps.

The BOJ also said it will buy corporate debt with lower credit ratings than it previously purchased, including BBB rated corporate bonds and a-2 commercial paper, according to a statement today in Tokyo. Board members will meet on Nov. 4-5 to discuss purchases of exchange-traded funds and real-estate investment trusts, more than a week earlier than scheduled.

Governor Masaaki Shirakawa’s decision to change the meeting date to follow the Federal Reserve’s Nov. 2-3 gathering signals he wants scope to react to any Fed easing, said economist Hideo Kumano. New York Fed President William Dudley set expectations of about $500 billion in bond purchases by the U.S. central bank, a step that may spur the yen and pose risks to Japan’s growth.

“The surprise was that the BOJ changed its schedule for the monetary policy meeting to right after the FOMC, indicating they are ready to address any market movements, especially in currencies,” said Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former BOJ official. “They are ready for a currency-devaluation race.”

FOMC Not Factor

Shirakawa said the dates of overseas events including the Federal Open Market Committee meeting weren’t behind the BOJ’s decision to move up the meeting date from Nov 15-16.

“We didn’t take them into consideration,” he told a news conference in Tokyo after the board meeting. Shirakawa said the board wanted to speed up purchases of ETFs and REITs by holding the meeting early and that policy and economic issues will be discussed as usual.

Japanese government bonds rose on speculation the BOJ could use the meeting to loosen credit further. The yield on the 10- year bond fell five basis points to 0.905 percent as of 5:24 p.m. in Tokyo.

“The BOJ is holding the next meeting earlier and will be ready to take action after markets react to the Fed’s action,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo. “Investors still have an appetite for bonds, especially short-term notes.”

The Bank of Japan’s board also left unchanged its forecast for consumer price growth of 0.1 percent in the fiscal year starting April 2011, and predicted a 0.6 percent increase the following year. Both forecasts are below the board’s median expectations that prices should rise by 1 percent to be considered stable.

Growth to Slow

The bank said that the economy will slow in the latter half of this fiscal year and there will be “some lingering effects of the yen’s appreciation” next year. The economy will recover after a temporary slowdown, it said.

At its last meeting on Oct. 5, the BOJ policy board unveiled “comprehensive monetary easing” steps including a 5 trillion yen ($61 billion) fund to buy more assets. Shirakawa repeated today that the bank is prepared to expand the fund if necessary.

“The Bank of Japan will continue to be exposed to calls on it to do more,” Izuru Kato, chief market economist at Totan Research Co. in Tokyo, said before the announcement. “There is a chance that the bank would double the size of the fund as early as in November.”

Global Crisis

The bank had only accepted bonds rated A or higher and a-1 commercial paper when it was buying corporate debt in 2009 in the wake of the global credit crisis.

Japan’s central bank is trying to aid an economy that is feeling the pain of deflation and the yen’s climb to a 15-year high, which is threatening the profits of exporters that have driven the economic recovery. The currency traded at 81.34 against the dollar as of 5:13 p.m.

The bank maintained the benchmark overnight call rate between zero percent and 0.1 percent, as forecast by economists surveyed by Bloomberg News. It also kept the amounts of its 5 trillion-yen asset buying fund and 30 trillion-yen credit program unchanged.

The fund will purchase 1.5 trillion yen of government debt, 450 billion yen in ETFs and 50 billion yen of REITs, the bank said. ETFs and REITs will be purchased at market price.

Staying Profitable

For Japanese companies, around 90 yen is “the limit to stay profitable,” Eiji Hayashida, chairman of the Japan Iron and Steel Federation and president of JFE Steel Corp., said this week. Nissan Motor Co. Chief Operating Officer Toshiyuki Shiga said this week the automaker plans to revise its expected exchange rate for the second half of this fiscal year to reflect a stronger yen.

Finance Minister Yoshihiko Noda, who led Japan’s intervention for the first time in six years in September, said this week that the yen’s advance can’t be stopped by the government’s efforts alone and he wants to work together with the central bank to prop up economic growth.

“It’s just unavoidable that Japanese companies will slash their profit outlooks,” said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. “It’s fully possible that the BOJ will take an additional easing step by the end of the year, and it will probably seek to expand the fund, prolong the duration of assets it buys and ease requirements for purchases.”

Riskier Assets

With money-market rates already low, the central bank is turning to purchases of riskier assets to reduce their premiums and push down borrowing costs.

BOJ policy makers pledged on Oct. 5 to maintain its “virtually zero rate policy” until price stability comes in sight.

“Given that 1 percent inflation is the median level of what the BOJ considers price stability, we have to say it’s almost impossible to predict” when the bank will be able to exit its current rate policy, said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo.

The Ministry of Finance approved the BOJ’s plan to purchase ETFs and REITs, the central bank said in an e-mailed statement today, a step required for the bank to proceed.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net;

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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