The Bank of Japan launched “shock and awe” tactics today to pull the world’s third-biggest economy of its deflationary spiral with a hugh expansion of its money printing programme.
The yen plunged more than 2 per cent today as the BoJ’s new governor Haruhiko Kuroda — under pressure to boost the economy from Prime Minister Shinzo Abe — embarked on plans to reflate the economy and hit a 2 per cent inflation target, against minus 0.7 per cent in February, within two years.
Against the backdrop of an economy which has been stagnant or shrinking since the second quarter of last year, Japan’s central bank will nearly double the size of its bond purchases, double the money supply and vastly extend the breadth of the assets it buys to include private sector debt.
The central bank’s so-called “banknote rule”, under which it keeps government bond purchases below the amount of banknotes in circulation, will also be torn up. Kuroda called it “a new phase of monetary easing both in terms of quantity and quality” to “drastically change the expectations of markets”.
Tokyo’s Nikkei average soared more than 2 per cent on the BoJ’s announcement, on expectations that the slump in the yen will give a shot in the arm to Japan’s export-led economy.
It is hoped the aggressive monetary policy efforts will inflate prices and encourage more spending. They come alongside increased public spending from Abe to boost demand and make Japan’s debt-laden economy more competitive.
Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, described the move as a “shock-and-awe policy”.
While he warned that the policy was by no means guaranteed to bring success, he said: “They’re doing a whole lot more. What they’ve down up to now has been a bit grudging. They are doing things on a far bigger scale.”