Guide to What the BOJ Is Changing, and What It's Not

  • The `key point' is that the main stimulus program is unchanged
  • There are tweaks to purchases of JGBs, J-REITs and stocks

The Bank of Japan surprised economists today by making operational changes to its unprecedented monetary-stimulus program. Here’s what has changed as a result of the announcement:

Size of main monetary stimulus program: Unchanged

The target for overall asset purchases hasn’t shifted. The BOJ still plans to boost the monetary base by an annual rate of 80 trillion yen ($656 billion). The bank reiterated that it will maintain its "quantitative and qualitative monetary easing" as long as needed to maintain its 2 percent inflation target “in a stable manner.”

This is “the key point,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note after the policy meeting. The tweaks in other areas “are all helpful measures, but they won’t make much difference in practice.”

Japanese government bond purchases: Tweaked

The central bank will continue buying JGBs so that the amount outstanding will increase at annual pace of 80 trillion yen, but there will be a shift in the securities that the BOJ buys. The average remaining maturity of JGBs bought will be extended to about seven to 12 years, from the start of next year. That’s up from the previous average maturity of seven to 10 years.

“It is appropriate to encourage a smoother decline in interest rates across the entire yield curve taking into account developments in the JGB market and the situation in financial institutions’ holdings,” the BOJ said. Three of the nine board members voted against this move.

Stock purchases: Increased (a little)

The BOJ is effectively increasing the size of its equities purchases, by adding a plan to buy about 300 billion yen a year of exchange-traded funds to the existing program of buying about 3 trillion yen a year of ETFs. The new 300 billion yen a year plan will be aimed at “firms that are pro-actively making investment in physical and human capital.”

The new program will start with ETFs tracking the JPX-Nikkei Index 400, a gauge championed by the Abe administration’s corporate-governance reform initiative that selects companies based mainly on performance of return on equity and operating profits. The new program will start in April 2016. Three of the nine board members voted against this new program.

Here’s where it gets complicated: Offsetting sales

The new ETF program is designed to offset sales of stocks that the BOJ had accumulated under a previous initiative to reduce banks’ shareholdings. Sales of those stocks are scheduled to start in April 2016.

Once the sales from the previous initiative start, the pace will be about 300 billion yen a year, based on the November 2015 mark-to-market date. In another change, the BOJ postponed the deadline for selling back these stocks, to March 2026, from the previous deadline of September 2021.

Real Estate Investment Trusts: Tweaked

The pace of purchases of Japan Real Estate Investment Trusts, or J-REITs, remains about 90 billion yen a year, the same as before Friday’s decision. However, the central bank is increasing the maximum amount of each J-REIT issue that it can buy, to 10 percent from 5 percent. Three of the nine board members voted against this move.

Lending-support programs: Extended, Tweaked

The BOJ extended, by one year, two programs designed to boost private-sector lending that date from before Kuroda took the helm. This is the third time these facilities have been extended under Kuroda. The types of loans that will qualify for BOJ credit will also be tweaked, to favor “firms that are pro-actively making investment in physical and human capital,” the BOJ said.

Collateral rules: Loosened

Because banks’ holdings of government bonds have declined as the BOJ bought them up, lenders have less eligible collateral to obtain credit from the BOJ if needed. So the BOJ decided to accept foreign-currency denominated loans and housing loans as collateral in financing operations.

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