REUTERS

REFILE - CORRECTING HEADLINE A man walks past an electronic board displaying major foreign currency rates against the Japanese yen in Tokyo February 14, 2012. The yen fell on Tuesday as the Bank of Japan eased monetary policy by expanding its asset-buying scheme, but the impact on the currency may prove short-lived while nagging worries over the euro zone crisis keep it supported as a safe haven. REUTERS/Toru Hanai (JAPAN - Tags: BUSINESS)

Toru Fujioka and Keiko Ujikane Tokyo

Japan’s central bank unexpectedly added ¥10 trillion (R989 billion) to an asset purchase programme yesterday and set an inflation goal after an economic slide fuelled criticism it has been slower to act than counterparts.

The Bank of Japan (BoJ) had increased its asset fund to ¥30 trillion, with its credit lending programme staying at ¥35 trillion, it said in Tokyo.

The bank also said that it would target 1 percent inflation “for the time being”.

Stocks rose and the yen weakened against the dollar as the central bank expanded stimulus for the first time since October to revive an economy that shrank an annualised 2.3 percent last quarter.

Legislators had urged extra efforts to counter deflation after the US Federal Reserve adopted a 2 percent inflation target and the European Central Bank (ECB) expanded its balance sheet.

The latest decision “shows the BoJ bowed to political pressure”, Hiroaki Muto at Sumitomo Mitsui Asset Management said. “There will probably be limited impact on the yen’s gains.”

The overnight lending rate stayed between zero and 0.1 percent. Twelve of 13 economists surveyed had anticipated no change in stimulus or rates.

Japan’s bonds rose, sending the yields on five-year securities down 2 basis points to 0.32 percent as of 6.56pm in Tokyo, matching the lowest since November last year. The benchmark 10-year yield also declined 2 basis points to 0.96 percent.

The BoJ’s price framework was similar to that of the Fed and easing wasn’t in response to government pressure, governor Masaaki Shirakawa said at a press briefing in Tokyo. The central bank aimed to “clarify its monetary policy stance” and wanted to “overcome deflation and achieve sustainable growth with price stability”.

The BoJ’s stated understanding of price stability has been gains of from above zero to 2 percent, centred on 1 percent.

Yesterday the policy board said it had “decided to set a goal of 1 percent for the time being to clarify the inflation rate which the bank’s monetary policy aims to achieve”.

The yen slipped to ¥78.12 a dollar as of 6.56pm in Tokyo, from ¥77.60 before the announcement and compared with a post World War II high of ¥75.35 in October last year. The currency’s strength is hurting exporters such as Sony, which has more than doubled its annual loss forecast to ¥220bn. The Nikkei 225 stock average closed 0.6 percent higher.

Legislators renewed criticism of the BoJ after the announcement, with Kozo Yamamoto, of the Liberal Democratic Party, saying the 1 percent target was “too low” and not a substantial change from existing policy.

Takeshi Miyazaki, a ruling Democratic Party of Japan (DPJ) legislator, said the central bank’s approach seemed half-hearted and might give the impression that Japan tolerated a strong yen.

A group of DPJ legislators is seeking an inflation target of 2 percent to 3 percent.

“Compared with the ECB’s definition of price stability or the Fed’s price target, the BoJ’s clarification still seems vague,” Junko Nishioka at RBS Securities Japan said.

Prices have not risen at least 1 percent for any year since 1997, and the economy now faces drags ranging from weakness in global demand to shutdowns of nuclear power plants after the earthquake and tsunami in March last year, which left more than 19 000 people dead or missing.

“We welcome the BoJ’s policy measures, which are aggressive steps intended to beat deflation,” Finance Minister Jun Azumi said in Tokyo yesterday. “I hope the BoJ’s bold monetary easing gives a boost to the economy.”

Shirakawa and his colleagues acted three times last year to expand asset purchases by a total of ¥15 trillion, but this did not halt yen gains. The latest increase in the asset purchase facility would fund purchases of more government bonds, the bank said. – Bloomberg