he Bank of Japan (BOJ) announced on Friday it would expand the size of its asset purchasing program while maintaining the same size of the monetary base, in a bid to drive wages higher and boost business spending, two mainstays of the economy.
The central bank, in a move not wholly predicted by market analysts, said a new program will be established to increase the bank's annual purchases of exchange-traded funds (ETFs) by 300 billion yen (2.46 billion U.S. dollars), to augment the current program which is set at around 3 trillion yen.
The bank also said the average maturity of its Japanese government bond holdings would be extended from seven to twelve years, from the previous seven to ten years, in a move that will help lower long-term interest rates and free up funds for businesses to invest.
The unexpected new round of stimulus by the central bank came immediately after the U.S. Federal Reserve said it would raise its interest rate for the fist time in almost a decade, in a move economists have said shows the Fed believes that the world's largest economy is approaching or back on a sustainable recovery path, with rises to the key rate likely to continue incrementally, so as to not abruptly unsettle global markets.
BOJ Governor Haruhiko Kuroda said the bank's latest moves were aimed at boosting the momentum of its methods to underpin the economy, hit its inflation target and augment spending across businesses and private sectors.
"We've taken steps to supplement QQE so that we can expand the program without hesitation if needed," said Kuroda.
"Companies and households are shifting away from a deflationary mindset. But there are discrepancies among sectors, so we want to broaden the positive momentum. We wanted to do whatever we can to support this drive," he said after the conclusion of the bank's policy meeting.
Kuroda said that the latest moves could not specifically be called monetary easing as the bank sees no risks to the economy, but the shifts were made to ensure the bank hits certain targets in the earliest possible time.
Kuroda described the decisions taken as preemptive, rather than reactive or aggressive.
"We actually revised up our assessment on exports and the latest tankan survey showed companies upgrading their revenue plans. We don't see economic and price conditions undershooting our estimates, so today's steps aren't monetary easing.
"Rather, we took these steps to ensure that we can continue with QQE smoothly or expand it if necessary to achieve 2 percent inflation at the earliest date possible. There's no change to our strong commitment to achieving our price target," he added.
Kuroda said it's not as if the BOJ's government bond buying is reaching its limits. "Rather, we wanted to ensure that our asset purchases push down yields across the curve. We thought it's desirable to take preemptive steps to ensure we can keep buying government bonds in a way that better meets the purpose of QQE."
The BOJ chief also noted that it was important for companies to pass on their profits to their employees, with the bank saying its focus was strongly on spring wage negotiations.
On the recent global oil glut that has played havoc with global markets and prices and dented expectations for inflation here, Kuroda said expectations remained fairly consistent for the mid-term.
"It's true that short-term inflation expectations are falling, but medium- to long-term inflation expectations haven't fallen much. Prices are rising not just for a small number of goods but for a wide range of goods," he said.
"Oil price falls are pushing down consumer prices and short-term inflation expectations for the time being. But I don't think the oil price falls are affecting long-term inflation expectations or companies' price-setting behavior," he said.
"We're watching inflation expectations carefully. But I don't think they are falling sharply at present."
Three of the nine BOJ Policy Board members opposed the new ETF program that will be launched in April, when the bank will start buying ETFs composed of stocks issued by companies that are "proactively making investment in physical and human capital" the bank said in a statement.
The BOJ has maintained its overall assessment of the Japanese economy, saying it "has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies."
However, some analysts feel that the bank's reflationary target, one of the cornerstones of Prime Minister Shinzo Abe's economic policy, may be overly ambitious.
Although Kuroda has said the bank's fresh moves are preemptive, some feel it will ultimately have to roll out further measures to hit its 2 percent inflation target in two years.
Despite revised economic figures showing that Japan did not enter a recession in the previous quarter and business investment was fairly robust, recent data has indicated that despite solid profits from businesses here, wages are still largely flat.
This means that companies are not entirely comfortable with the economic situation in the country.
Similarly, the figures paint a familiar picture for households, who are not spending on a rate comparable with a healthy economy or outlook for improvements in the near or mid-term.
In fact, many economists believe that the next round of quarterly GDP data, while showing an increase, will only show marginal growth, leading many experts to believe that the bank's outlook and its rhetoric is largely, if not overly optimistic, in a bid to change the nation's ongoing "deflationary mindset" that continues to be pervasive after Japan has been mired in decades of deflationary pressure.