BoJ raises size of asset purchase program; yen falls

The Bank of Japan (BOJ) said on Monday it will increase the size of the asset purchase program from five trillion yen to 10 trillion yen and promised to inject additional liquidity into the financial system battered by the triple whammy of a disastrous earthquake, a tsunami and an unfolding nuclear crisis.

The BOJ voted overwhelmingly in support of a further policy easing, noting that the natural calamity has inflicted damage in a wide area and that output is likely to fall for some time. We are also worried that corporate and household sentiment will worsen, the central bank said.

The central bank also kept the benchmark rate unchanged at 0-0.1 percent. The central bank governor Massaki Shirakawa also said more policy easing would be considered in the coming months when accurate data regarding the damage suffered by the economy are available.

Shirakawa pledged the central bank will keep supplying enough liquidity to short term markets. Even if the BOJ's operations don't meet sufficient demand from financial firms, there may be banks that still feel that they don't have enough liquidity, he said.

The yen weakened on Friday after the BoJ announced more asset purchases. These new purchases will not be completed until June 2012, meaning that the Bank of Japan could still be loosening monetary policy long after other central banks have started to withdraw their unconventional support and some have even begun to raise rates, Capital Economics analysts Julian Jessop and David Rea wrote in a note. We continue to expect further yen weakness and stick to our year-end target of 90 yen/dollar, they said.