The Bank of Japan will purchase corporate debt with lower credit ratings than it accepted before, as part of its latest easing program that attempts to support the economy by helping companies borrow.
The BOJ will buy BBB rated corporate bonds and A-2 commercial paper, the bank said in a statement released today in Tokyo. Board members will meet again next week to discuss how the bank will purchase exchange-rated funds and real-estate investment trusts, the bank said.
At its last meeting on Oct. 5, the BOJ policy board unveiled ?comprehensive monetary easing? steps including a 5 trillion yen ($61 billion) fund to buy more assets. Governor Masaaki Shirakawa may feel pressure to loosen credit further should yen gains threaten exports and if the U.S. Federal Reserve next week embarks on a second round of quantitative easing, said economist Izuru Kato.
?The Bank of Japan will continue to be exposed to calls on it to do more,? Kato, chief market economist at Totan Research Co. in Tokyo, said before the announcement. ?There is a chance that the bank would double the size of the fund as early as in November.?
The bank had only accepted bonds rated A or higher and a-1 commercial paper when it was buying corporate debt in 2009 in the wake of the global credit crisis.
Japan?s central bank is trying to aid an economy that is feeling the pain deflation and the yen?s climb to a 15-year high, which is threatening the profits of exporters that have driven the economic recovery. The currency traded at 81.64 against the dollar as of 1:36 p.m., approaching a record high of 79.75 posted in April 1995.
Rate Unchanged
The bank also maintained the benchmark overnight call rate between zero percent and 0.1 percent, as forecast by economists surveyed by Bloomberg News.
For Japanese companies, around 90 yen is ?the limit to stay profitable,? Eiji Hayashida, chairman of the Japan Iron and Steel Federation and president of JFE Steel Corp., said this week. Nissan Motor Co. Chief Operating Officer Toshiyuki Shiga said this week the automaker plans to revise its expected exchange rate for the second half of this fiscal year to reflect a stronger yen.
Finance Minister Yoshihiko Noda, who led Japan?s intervention for the first time in six years in September, said this week that yen?s advance can?t be stopped by the government?s efforts alone and he wants to work together with the central bank to prop up economic growth.
Unavoidable
?It?s just unavoidable that Japanese companies will slash their profit outlooks,? said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. ?It?s fully possible that the BOJ will take an additional easing step by the end of the year, and it will probably seek to expand the fund, prolong the duration of assets it buys and ease requirements for purchases.?
With money-market rates already low, the central bank is turning to purchases of riskier assets to reduce their premiums and push down borrowing costs. Buying lower-rated corporate debt will go beyond the bank?s 2009 corporate debt purchases that followed the collapse of Lehman Brothers Holdings Inc. and were restricted to bonds rated A or higher and a-1 commercial paper.
The central bank today maintained the benchmark overnight call rate in a range of zero percent and 0.1 percent and refrained from providing any fresh stimulus.
BOJ policy makers pledged on Oct. 5 to maintain its ?virtually zero rate policy? until price stability comes in sight. The board members have said they consider prices to be stable in a positive range up to 2 percent, with the median of 1 percent.
Consumer Prices
Shirakawa and his board will update their predictions for economic growth and consumer prices for fiscal 2010 and 2011 in a semi-annual report to be released at 3 p.m. today, as well as publish estimates for the year ending March 2013 for the first time.
The BOJ board will probably maintain the view that consumer price declines will come to halt next year after falling two years as the latest monetary stimulus will boost growth and prices, three people with the knowledge of the matter said. Policy makers predicted in July core prices will fall 0.4 percent during this fiscal year and rise 0.1 percent in fiscal 2011.
Japan?s economy will expand 2.6 percent in the year to March 2011 and slow to 1.9 percent in the following year, the policy makers said in July.
That?s more optimistic than economists? predictions. Prices will decline 1 percent this fiscal year and 0.2 percent in the next year, according to a median of 15 economists surveyed by Bloomberg News. Prices will probably rise 0.1 percent in the fiscal 2012, they projected.
?Given that 1 percent inflation is the median level of what the BOJ considers price stability, we have to say it?s almost impossible to predict? when the bank will be able to exit its current rate policy, said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo.
To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net;
To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net
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