BOJ steps up monetary easing to fight yen's surge+

TOKYO, Aug. 4 Kyodo -
The Bank of Japan decided Thursday to additionally ease its monetary policy, expanding its 40 trillion yen (around $500 billion) asset purchase program to 50 trillion yen in a widely expected move amid growing pressure from the government to cooperate in spurring the economy by addressing the recent sharp rise of the yen.
The central bank's nine-member Policy Board voted unanimously for the decision at a one-day meeting, in which it also kept the key short-term interest rate at around zero to 0.1 percent.
''We made a policy response this time by judging that we should be more aware of downside risks,'' BOJ Governor Masaaki Shirakawa told a press conference after the meeting.
The appreciation of the yen against the U.S. dollar and other currencies, which has eroded the competitiveness of Japanese exporters, has added to the difficulties facing the country's economy following the March earthquake and tsunami, he said.
While warning that the yen's strength could also accelerate moves by Japanese firms to shift production abroad, Shirakawa said, ''We have judged that the strong yen at this moment is costly.''
The policy meeting, originally scheduled for Thursday and Friday, was shortened to one day in an emergency move that followed the government's intervention in the currency market earlier in the day to weaken the yen.
Finance Minister Yoshihiko Noda hailed the BOJ's decision on additional policy easing. The bank ''shared the recognition of economic conditions with the government and made a timely and appropriate response,'' he told reporters.
The collaboration between the government and the BOJ came amid fears that Japan's economic recovery from the March 11 disaster could be nipped in the bud unless they stop the yen's surge.
There is a view, however, that the BOJ only has limited options to directly affect the yen's exchange rate as the key short-term interest rate has already been lowered to around zero percent.
Under the asset purchase program, the BOJ attempts to ease credit conditions by purchasing financial assets such as government bonds, corporate debt and exchange-traded funds. The program is designed to affect longer-term rates and the risk premium that companies must pay when borrowing.
With its latest decision, the BOJ will expand the asset purchase fund by 5 trillion yen to a total of 15 trillion yen, while increasing the size of the fixed-rate funds-supplying operation against pooled collateral by another 5 trillion yen to a total of 35 trillion yen.
The program was introduced last October with an overall size of 35 trillion yen and was then upgraded in March with the size expanded to 40 trillion yen. The BOJ plans to complete the increased purchases by around the end of 2012.
This time around, the BOJ has doubled the amount of government bonds it will purchase -- to 4 trillion yen from 2 trillion yen. It also raised the amount for discount bills, or shorter-term sovereign debt, to 4.5 trillion yen from 3 trillion yen.
Increasing the purchases of those relatively safer assets signals that ''the BOJ is more cautious about the risks of undermining its balance sheet and of distorting financial markets by expanding the buying of riskier assets'' such as corporate bonds and real estate investment trusts, Takahide Kiuchi, chief economist at Nomura Securities Co., said in a report.
The Policy Board said in its statement, ''Japan's economic activity has been picking up steadily with an easing of the supply-side constraints caused by the Great East Japan Earthquake.''
But it also warned that uncertainty over overseas economies, especially in the United States and Europe, as well as ''the ensuing fluctuations in the foreign exchange and financial markets may have adverse effects on business sentiment, and consequently on economic activity in Japan.''