Exclusive: Bank of Japan weighs unlimited government bond buying

Linda J. Dodson

TOKYO — The Bank of Japan next week will discuss shifting to unlimited purchases of Japanese government bonds in response to a deep coronavirus-induced economic slump, Nikkei has learned.

The BOJ also will weigh doubling yearly purchases of corporate bonds and commercial paper during the policy meeting Monday, sources say, in an effort to help cash-strapped businesses finance their operations.

Japan’s central bank now aims to increase its government bond holdings at a pace of roughly 80 trillion yen ($742 billion) a year. Shifting to unlimited buying would have the BOJ adopt the same whatever-it-takes stance as the U.S. Federal Reserve.

The bank is expected to maintain its negative 0.1% policy rate and its policy of guiding the 10-year government bond yield to around zero percent.

Because the BOJ has corralled interest rates within the target range, its JGB purchases have remained well below the 80 trillion yen annual pace.

But the Japanese government is poised to issue more debt, which could put upward pressure on yields. The central bank seeks to show it will maintain its aggressive monetary easing stance by scrapping the limit on government bond buying.

The Fed already has committed to expanding purchases of U.S. government debt and mortgage-backed securities as much as needed to support market functions. The BOJ is watching how other central banks respond to the coronavirus pandemic while showing it is in step with the Japanese government’s fiscal policy mobilization.

To support big corporations in Japan’s contracting economy, BOJ policymakers will discuss increasing purchases of corporate bonds and commercial paper to about 15 trillion yen, up from the current levels of 4.2 trillion and 3.2 trillion yen, respectively. Interest rates on both types of debt are holding at high levels, raising the cost of borrowing for companies.

The BOJ also will boost assistance for small and midsize enterprises. Last month, the bank opened a zero-interest lending window to some financial institutions, which in turn extend credit to businesses. The BOJ plans to add Japan Finance Corp., which lends to smaller business, to the list of recipients. Requirements for collateral also will be eased.

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