TOKYO (AFX-ASIA) - The Bank of Japan said it has decided, by a majority vote, to boost outstanding reserves at the central bank to around 5 trln yen from slightly over 4 trln at present under a new monetary policy approach.
The bank said it will switch its major operational target to the level of bank reserves from the overnight call rate to deal with the renewed deterioration of the Japanese economy.
The BoJ said it expects the overnight call rate, as a result of the new operations, to fall from the present target rate of 0.15 pct to move around zero pct.
The central bank said it will maintain the new operational approach until year-on-year movement in core CPI, excluding fluctuations in perishable foods, moves above zero in a stable manner.
It added that it will increase long-term Japanese government bond purchases from the secondary market from the current 400 bln yen per month, if the bank judges that it needs to supply funds into the system smoothly.
However, the bank will set an upward limit based on outstanding bank note issuance.
"The Bank of Japan, with these measures, aims to prevent continued declines in prices and to pave the foundations for sustained economic growth," it said.
It cited notable declines in growth momentum and emerging deflationary pressure as the key reasons for the implementation of the new approach.
"The economy, due to the influence of a rapid deceleration of overseas economies, saw moderation in its recovery tempo since late last year and came to a state of standstill," the BoJ said.
"Prices, in the meantime, continue to weaken and there is concern that downward pressure on prices stemming from weak demand may strengthen henceforth," it said.
The bank stressed the need for structural reform, adding that a solution to the impaired loan/bad debt problem, as well as progress in restructuring of the financial system, economy and industry, are indispensible conditions for the economy to regain sustainable growth. In a separate statement, the BoJ said it will maintain the Lombard, or official discount, rate at 0.25 pct.