The Bank of Japan launched an aggressive monetary easing program on Thursday, as newly appointed Governor Haruhiko Kuroda began his campaign to reverse 15 years of deflation which has been a drag on the economy.

Concluding the two-day monetary policy meeting today, the policy board said the BoJ will double the monetary base and its holdings of Japanese Government Bonds, or JGBs, as well as the exchange-traded funds, or ETFs.

The BoJ will buy JPY 7 trillion worth JGBs a month and the outstanding amount for these bonds will increase at an annual pace of about JPY 50 trillion. This is expected to encourage a further decline in interest rates across the yield curve.

The board also decided to more than double the average remaining maturity of JGB purchases and keep it between 6 and 8 years compared to slightly less than three years at present. In addition, JGBs with all maturities including 40-year bonds will be made eligible for purchase.

As a result, the outstanding balance of the BoJ's JGB holdings will increase to JPY 140 trillion at the end of 2013 and to JPY 190 trillion at the end of 2014 from JPY 89 trillion at the end of 2012.

The Board has moved the main operating target for money market operations to the monetary base from the current uncollaterilized overnight call rate. The bank said it "will conduct money market operations so that the monetary base will increase at an annual pace of about JPY 60-70 trillion."

Under this guideline, the monetary base, which had JPY 138 trillion in outstanding amount at the end of 2012, is expected to reach JPY 270 trillion yen at the end of 2014.

The BoJ temporarily suspended the banknote principle that imposes a limit on bank's holdings of long-term government bonds. The central bank also set a time horizon of about two years for attaining its 2 percent inflation target.

Additionally, the BoJ said it is introducing "quantitative and qualitative monetary easing" and added the easing measures will be in place "as long as it is necessary" for maintaining the 2 percent inflation target "in a stable manner."

Decisions to adopt monetary base control, increase JGB purchases, extend their maturity as well as increase ETF and Japan real estate investment trusts, or J-REIT, purchases were unanimous.

However, board member Takahide Kiuchi proposed to delete the wordings "with a time horizon of about two years," and to add "the Bank introduces the quantitative and qualitative monetary easing while setting the time frame of about two years as intensive periods for aiming to achieve the price stability target of 2 percent."

He also proposed to drop the phrase "the continuation of the quantitative and qualitative monetary easing" from the monetary policy statement. However, these proposals were defeated by an 8-1 majority vote.

The central bank said that Japan's economy has stopped weakening and has shown some signs of picking up. The year-on-year rate of change in the CPI has recently been slightly negative, but some indicators suggest a rise in inflation expectations, the bank said.

RTTNews