BOJ’s Comprehensive Policy Review Has a Lot to Take in: Primerby
Haruhiko Kuroda became Bank of Japan governor in 2013 vowing to beat inflation and drag the economy out of its malaise. More than three years later, this hasn’t happened, and last week he ordered his staff to conduct a comprehensive review of the BOJ’s policies to see what is needed to meet its 2 percent price target.
As the chart indicates, Kuroda is the latest in a long list of governors to use "unconventional" monetary policies to try to drag Japan out of its funk since the bursting of an asset-price bubble in the early 1990s. An earlier attempt with quantitative easing (marked in pink) began during Masaru Hayami’s term, followed by other experiments until Kuroda arrived on the scene (marked in yellow).
To understand what could change after the review, which is due to be completed for the next board meeting on Sept. 20-21, below is a rundown of the many and varied policies already being pursued by the BOJ.
Kuroda emphasized this week that he doesn’t see policy shrinking after the review and that his purpose is to find a way to hit 2 percent inflation.
1. Quantitative and qualitative easing
|Targeted Annual Increase||Targeted holding||Current size of holdings|
|Expand the monetary base||80 trillion yen||403.9 trillion yen|
|Government bonds and other securities||80 trillion yen||386.7 trillion yen|
|Exchange-traded funds||6 trillion yen||8.7 trillion yen|
|Real-estate investment trusts||90 billion yen||0.3 trillion yen|
|Commercial paper||2.2 trillion yen||2.3 trillion yen|
|Corporate bonds||3.2 trillion yen||3.2 trillion yen|
The BOJ’s bond purchases didn’t start with Kuroda and are a continuation of previous policies. The scale of the buying changed under Kuroda, who combined various different programs and doubled the size of bond purchases at his first meeting as governor.
The negative interest rate
The bank imposed a negative interest rate from February on some of the money that financial institutions park at the BOJ. Within a three-tier system covering funds deposited at the central bank, the category known as the policy-rate balance attracts a negative rate of 0.1 percent. In the month through July 15, this applied to about 25.7 trillion yen.
Since it was announced, the negative rate has driven down borrowing costs across the economy, cutting into commercial bank profits and pushed bond yields below zero. The policy is meant to stimulate lending and demand for loans, without overly damaging profitability at banks, but it has been met with a very negative reaction, including criticism from the head of Japan’s banking association.
In addition, the bank has a number of lending programs that started under Kuroda’s predecessor, Masaaki Shirakawa. One of these, a dollar-lending scheme, was doubled to $24 billion last month and a new program to lend government securities to financial institutions was also announced.
|Fund-Provisioning Measure to Stimulate Bank Lending||Unlimited||25.5 trillion yen|
|Fund-Provisioning Measure to Support Strengthening the Foundations for Economic Growth||11 trillion yen||6 trillion yen|
|U.S. Dollar Funds-Supplying Operations Against Pooled Collateral||$24 billion||$12 billion|
|BOJ lending of Japanese government securities||None so far|