TOKYO (Reuters) – The Bank of Japan ramped up measures to ease corporate funding strains and pledged to buy unlimited amounts of government bonds to cushion the blow from the coronavirus pandemic on a fragile economy.
Below are key points from the raft of measures the central bank decided at its policy meeting on Monday:
INCREASED COMMERCIAL PAPER, CORPORATE BOND BUYING
The BOJ ramped up by three-fold the maximum amount of commercial paper (CP) and corporate bonds it buys to a combined 20 trillion yen ($186 billion).
To buy such huge amounts in Japan’s relatively small market for these instruments, it loosened some rules. For one, the BOJ extended the maturity of corporate bonds it accepts to five years from the current three years.
The BOJ also tweaked a rule limiting to 25% the maximum amount of CP and corporate bonds it holds per entity, raising the ceiling to 50% for CP and 30% for corporate bonds.
The cap for the BOJ’s buying of CP per entity was raised to 500 billion yen and that for corporate bonds to 300 billion yen, from the current 100 billion yen.
UNLIMITED GOVERNMENT BOND BUYING
The BOJ removed loose guidance pledging to buy government bonds so its holdings increase at an annual pace of roughly 80 trillion yen.
Instead, it pledged to buy as much as needed without a limit, to achieve its 0% long-term interest rate target.
Removing the guidance on its bond buying is largely a symbolic move. The BOJ has only purchased less than 20 trillion yen per year, as the central bank’s huge presence in the market allows it to control yields with fewer purchases.
Still, the move will help ease market jitters by clarifying the BOJ’s resolve to ramp up money printing to keep borrowing costs stably low, BOJ Governor Haruhiko Kuroda told reporters.
CORPORATE FUNDING MEASURES
In a surprise move, the BOJ decided to pay financial institutions for borrowing money from the central bank under a new loan scheme aimed at rescuing firms hit by the pandemic.
Under the scheme created in March, the BOJ extends loans by up to one year at zero interest to financial institutions.
In a move aimed at encouraging commercial banks to boost lending, the BOJ will now pay a 0.1% interest to financial institutions that tap the loan programme.
It also expanded the range of assets it accepts as collateral from financial institutions to include mortgage loans and other household debt – a move aimed at preventing commercial banks from pulling money out from borrowers hit by job losses or declining income.
The BOJ will also create as early as next month another programme aimed at encouraging financial institutions to boost lending to mom-and-pop firms, many of whom are deprived of safety nets to prevent them from going under.
(Reporting by Leika Kihara; Editing by Jacqueline Wong)