Bank of Japan officials see significant scope to boost government bond purchases if needed to achieve their inflation target, according to people familiar with the discussions, signaling little concern with perceptions of underwriting fiscal deficits.
While no decision will be made until the central bank has more time to assess price trends, the current pace of asset purchases -- equivalent to 70 percent of new government-debt issuance -- isn’t a limit for many officials, according to the people, who asked not to be named as the talks are private. Some officials highlight the size of the market offering plenty of room to buy more, according to the people. The BOJ in September reported that it held 15.4 percent of the 969 trillion yen ($9.4 trillion) of government bonds outstanding.
With most economists surveyed by Bloomberg News anticipating the BOJ will escalate its stimulus after a bump in the national sales tax in April, focus is increasing on how the central bank will execute such a move. Along with government bonds, the central bank has been purchasing equities through exchange-traded funds and real-estate investment trusts.
“The BOJ has a completely different mindset than in the past,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “There is no way back -- the central bank has to continue easing until it achieves its price target.”
Forecast to leave policy unchanged at a two-day meeting that starts tomorrow, the BOJ has already unveiled monetary easing that is unprecedented for Japan as the central bank chases a goal of driving 2 percent inflation in about two years. The BOJ is targeting a 50 trillion yen increase in bonds outstanding per year.
The yield on 10-year government bonds touched a record low of 0.315 percent on April 5, the day after the central bank unleashed its record easing program, before climbing to a one-year high of 1 percent on May 23. Today, the debt traded at 0.66 percent as of 2:11 p.m. in Tokyo.
Under Governor Haruhiko Kuroda, the central bank is focused less on the risks associated with monetary policy and more on the importance of achieving price stability, the people familiar with the discussions said.
The bank wants to avoid perceptions that it’s financing government debt. The International Monetary Fund warned in July that interest rates could abruptly spike if investors lost confidence in the nation’s debt or became concerned that the central bank was directly financing public spending.
Board members Takehiro Sato and Takahide Kiuchi have expressed concern about the likely value of any extra easing, indicating that any future move to increase bond purchases might not be unopposed.
Abe’s government has already unveiled a stimulus package to help the nation weather the tax increase that, while helping to improve the nation’s finances, is forecast to trigger a one-quarter contraction in the world’s third-biggest economy.
The central bank will assess conditions after the tax increase to judge whether efforts to reach its inflation target are at risk and whether any extra easing is needed, the people said. The bank has made it clear it won’t take any incremental step, the people said.
Kuroda said this month that he doesn’t believe that the risks from the increase in the levy are so high.
In Asian economic data today, Japan reported the biggest November trade deficit on record as imports climbed 21.1 percent from a year earlier, supported by demand ahead of a sales-tax increase in April.
Home-price figures in China showed the potential for bubbles in some major cities. Shenzhen and Guangzhou posted increases of 21 percent in November from a year earlier, while prices climbed 18 percent in Shanghai and 16 percent in Beijing, data from the National Bureau of Statistics showed today.
Germany releases data on business confidence today, the U.K. gives jobless figures and housing-start numbers are due in the U.S.