SINGAPORE (MktNews) - The Bank of Japan has met market expectations with its newly announced monetary policy stance and now the burden could shift to the Ministry of Finance to implement more fiscal steps to help lift the Japanese economy out of the doldrums, analysts said.
"The BOJ has done whatever they could. It really cannot do anything more to help the economy," said Hiroyuki Kawamata an analyst at Mizuho Securities in Tokyo.
Kawamata added that if the economy doesn't improve, the pressure is off the BOJ and on the Ministry of Finance to implement more fiscal programs.
The BOJ announced that it will target bank reserves rather than interest rates and raise its limit for bank reserves by Y1 trillion to Y5 trillion. The new policy will remain in place until consumer prices stabilize above zero.
If necessary, the BOJ said it will expand its monthly purchase of government bonds from the current Y400 billion limit.
Due to limited demand at the moment, the new policy will effectively push interest rates to zero, analysts said. "The BOJ has done what was expected of it" agreed Jai Tiwari, a fixed income analyst at IdeaGlobal in Singapore.
The move to let the market decide the interest rate based on demand is fair enough, though seasonal factors could distort things, Tiwari warned. In addition, the possible increase in the purchase of JGBs or otherwise monetizing the debt paves the way more fiscal programs.
Tiwari added, however, that the BOJ was vague about its token inflation-targeting as it didn't explain how it was going to push prices back above zero.
Since the BOJ announcement, the yen has firmed slightly against the dollar and Japanese Government bond prices moved higher.
"The new BOJ policy is very expansionary. It is a huge step," said Woon Khien Chia, an economist as Dresdner Bank in Singapore.
She added however it will be difficult to analyze the impact on the financial markets, as there are key external factors that have to be taken in account, namely want happens on Wall Street overnight and what rate step is announced by the Federal Reserve on Wednesday.