BOJ Expands Asset-Purchase Fund to 40 Trillion Yen

The Bank of Japan (8301) added monetary stimulus for a second time in three months amid mounting calls from lawmakers to redouble efforts to spur economic growth.

The central bank expanded its asset-purchase fund to 40 trillion yen ($494 billion) from 30 trillion yen, according to a statement released in Tokyo today. It also extended the maturity of bonds it buys to 3 years from a two-year limit. All 14 economists surveyed by Bloomberg News predicted an increase in the fund, the central bank’s main policy tool.

Government reports today showed industrial production rose less than analysts anticipated in March, a sign growth may be moderating. Lawmakers have stepped up pressure on the central bank to ease policy by rejecting a board member candidate some said wasn’t aggressive enough about stimulus and weighing to alter a law that guarantees the central bank’s independence in setting monetary policy.

“The timing for stimulus isn’t ideal as it looks like the BOJ gave in to political pressure and market expectations,” Masayuki Kichikawa, chief economist at Bank of America Merrill Lynch, said before today’s decision. “The BOJ will probably have to continue easing for at least the next two years as the end of deflation is very far.”

The Bank of Japan left the key rate between zero and 0.1 percent and reduced the 35 trillion yen credit-lending program by 5 trillion yen.

Consumer Prices

A report later today will probably show the central bank’s projections for prices this year and next are still far from its 1 percent target. Board members will probably say consumer prices will rise 0.6 percent in the year starting April 1 from the current forecast of 0.5 percent in the report due at at 3 p.m., according to 10 of 14 economists surveyed by Bloomberg News. Shirakawa will speak to reporters at 3:30 p.m. Core prices, the bank’s preferred measure that excludes fresh food, rose 0.2 percent in March, the statistics bureau said today.

Lawmakers blocked BNP Paribas SA economist Ryutaro Kono from joining the BOJ board this month. There have been two vacancies on the nine BOJ board since April 5. Lawmakers from the biggest opposition Liberal Democratic Party are calling for the central bank and government to pursue an inflation target of 2 percent, according to a policy outline released April 13. Some LDP members are compiling a bill to revise the BOJ law to allow more political power over monetary policy.

The BOJ may add more stimulus in July, when it will review forecasts released today, said analysts including Mari Iwashita, chief market economist at SMBC Nikko Securities Inc. in Tokyo.

Bond Purchases

The BOJ unexpectedly boosted its bond purchases by 10 trillion yen and set an inflation goal of 1 percent in February, helping weaken the yen to an 11-month low against the dollar. The currency traded at 81.11 as of 9:58 a.m. in Tokyo.

Nissan Motor Co. (7201) Chief Executive Officer Carlos Ghosn said this week that the currency is the unpredictable “one-thousand- pound gorilla” that makes all Japanese car manufacturers suffer.

Rising pressure on the BOJ comes as Prime Minister Yoshihiko Noda is struggling to convince lawmakers to double a 5 percent sale tax to contain the world’s largest public debt burden. Political pressure will remain high as politicians want to show public that the nation is making progress toward the end of deflation so a tax hike won’t be too much of burden, Kichikawa said.

The BOJ’s asset-purchase has swelled from its initial 5 trillion yen size when it was introduced in October 2010.

Federal Reserve Chairman Ben Bernanke said the central bank stands ready to add to its stimulus if necessary even after leaving its policy unchanged on April 25. The U.K. economy shrank in the first quarter as Britain slid into its first double-dip recession since the 1970s, the Office for National Statistics said this week.

“Overseas economies as a whole have yet to emerge from a deceleration phase,” Deputy Governor Kiyohiko Nishimura said last week.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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