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19 Feb 2014
Flash: Is BoJ expanded lending support additional easing? - Nomura
FXStreet (Bali) - According to Nomura Economists Shuichi Obata and Tomo Kinoshita, Tuesday's BoJ decision to extend and enlarge two bank loan programs should not be seen as additional easing.
Key Quotes
"The BOJ decided to double the size of the stimulating bank lending facility and extend it by one year (the application deadline for this facility was previously end-March 2014). To be more precise, the maximum amount of the BOJ’s fund provisioning to each financial institution shall be an amount that is twice as much as the net increase in its lending, the maximum amount of the BOJ’s fund provisioning under the main rules of the growth-supporting funding facility shall be doubled from ¥3.5trn to ¥7trn, and the interest rate applied to the facility shall be fixed at 0.1% per annum for four years (versus 1–3 years to date)."
"This measure does not constitute additional easing. The issue is whether this measure constitutes additional easing. We would argue that it does not. First, the BOJ’s policy has been to conduct money market operations so that the monetary base increases at an annual pace of around ¥60–70trn. If it had explicitly increased this amount, that would clearly have constituted additional easing. However, it did not."
"Second, if the amount outstanding of fund provisioning under this facility comes in higher than previously expected, growth in the monetary base may ipso facto exceed the BOJ’s policy for the conduct of money market operations. However, in this case, the BOJ will be able to engage in other money market operations, for example the purchase of short-term JGBs or fund-supplying operations against pooled collateral, in line with its policy."
"Third, funds supplied via this facility are backed by bank loans, and are therefore not direct BOJ money market operations (see the exhibit overleaf for the BOJ’s projected balance sheet)."
Key Quotes
"The BOJ decided to double the size of the stimulating bank lending facility and extend it by one year (the application deadline for this facility was previously end-March 2014). To be more precise, the maximum amount of the BOJ’s fund provisioning to each financial institution shall be an amount that is twice as much as the net increase in its lending, the maximum amount of the BOJ’s fund provisioning under the main rules of the growth-supporting funding facility shall be doubled from ¥3.5trn to ¥7trn, and the interest rate applied to the facility shall be fixed at 0.1% per annum for four years (versus 1–3 years to date)."
"This measure does not constitute additional easing. The issue is whether this measure constitutes additional easing. We would argue that it does not. First, the BOJ’s policy has been to conduct money market operations so that the monetary base increases at an annual pace of around ¥60–70trn. If it had explicitly increased this amount, that would clearly have constituted additional easing. However, it did not."
"Second, if the amount outstanding of fund provisioning under this facility comes in higher than previously expected, growth in the monetary base may ipso facto exceed the BOJ’s policy for the conduct of money market operations. However, in this case, the BOJ will be able to engage in other money market operations, for example the purchase of short-term JGBs or fund-supplying operations against pooled collateral, in line with its policy."
"Third, funds supplied via this facility are backed by bank loans, and are therefore not direct BOJ money market operations (see the exhibit overleaf for the BOJ’s projected balance sheet)."