FACTBOX-BOJ's tool kit to beat deflation, support economy

TOKYO, Oct 30 (Reuters) - The Bank of Japan is expected to ease monetary policy on Tuesday by expanding asset purchases as slumping exports heighten pressure for bolder action to support an economy on the verge of recession.

The BOJ set a 1 percent inflation target and eased policy via an increase in its asset-buying and loan programme in February. It expanded the scheme again in April and September to ease the pain from a strong yen and slowing global growth.

Following are the main items in the BOJ's tool kit, how they work and what could happen next:


The scheme is the BOJ's direct, short-term monetary policy tool to push down bond yields and risk premiums by purchasing government bonds and private debt such as corporate bonds and trust funds investing in property and stocks.

The scheme, put in place in October 2010, has two pools of funds - one for directly buying assets and another for offering funds against collateral via market operations at 0.1 percent.

The BOJ doubled the size of its asset purchases by 10 trillion yen ($125.92 billion) just after last year's devastating earthquake. It increased both pools of funds by 5 trillion yen each in August and topped up government bonds by another 5 trillion yen in October last year.

The BOJ accelerated easing this year by boosting government bond buying in February and April, each by 10 trillion yen, and extending the duration of government and corporate bonds targeted under the scheme to three years from two years.

The BOJ also decided to buy more exchange-traded funds (ETFs) and real-estate investment trusts in April, while trimming fixed-rate lending operations by 5 trillion yen.

Last month, the BOJ said it would buy an extra 5 trillion yen in long-term bonds and an extra 5 trillion yen in treasury bills.

The asset-buying and loan programme now has a combined size of 80 trillion yen: 55 trillion yen for asset purchases and 25 trillion yen for fixed-rate market operations. As of Oct. 10, the BOJ has bought 31.6 trillion yen in assets and lent 30.7 trillion yen under the scheme.


This scheme was launched in June 2010 as a long-term effort to beat deflation and boost the economy's growth potential, weighed down by an ageing population and low productivity.

It offers up to 3 trillion yen in 0.1 percent, one-year loans to banks, that lend to industries with growth potential such as clean energy and nursing care.

The central bank expanded this scheme in June last year by adding a 500 billion yen credit line for banks that lend against inventory and receivables as collateral.

That makes funds more readily available to small firms that do not own property, which is a standard form of collateral.

In March, the BOJ expanded the scheme again by 2 trillion yen to 5.5 trillion yen, while extending the deadline by two years to March 2014.

It created new loan arrangements including one that will tap its dollar reserves to encourage investments and loans denominated in foreign currencies.

Some BOJ officials favour expanding this loan programme, because it is potentially a longer-term approach to beating deflation, sources tell Reuters.


The scheme was created in April last year to meet an immediate funding need for quake relief in the devastated northeast.

The BOJ offers 0.1 percent, one-year loans to financial institutions operating in quake-hit prefectures and accepts a wider than usual range of assets as collateral.

The central bank extended the duration of the scheme twice, including in March when it decided on a one-year extension to April next year, expecting that demand for funds will pick up as reconstruction progresses.

(Reporting by Stanley White; Editing by Simon Cameron-Moore)