BoJ surprises world with easy money policy to raise inflation
1 Nov 2014 11:04 PM GMT
The day after the US Federal Reserve decided to completely wind off its monetary stimulus programme in the wake of ‘substantial improvement in labour market’, the Bank of Japan surpised global financial markets by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April.
BOJ Governor Haruhiko Kuroda portrayed the board's tightly-split decision to buy more assets as a preemptive strike to keep policy on track, rather than an admission that his plan to reflate the long moribund-economy had derailed.
But some economists wondered if pushing even more money into the financial system would be effective as long as consumer confidence continues to worsen and demand remains weak.
‘It's clearly a big surprise given Kuroda's repeated insistence that policy was on track and assorted politicians have been warning about the negative side of a weak yen currency,’ said Sean Callow, a currency strategist at Westpac.
‘We salute the BoJ for admitting that they weren't going to reach their goals on inflation or GDP, though we do note that the new policy equates to about $60 billion of quantitative easing per month. This perspective does raise the question of just how much impact monetary policy is having.’
The jolt from the BOJ, which had been expected to maintain its level of asset purchases, came as the government signalled its readiness to ramp up spending to boost the economy and as the government pension fund, the world's largest, was set to increase purchases of domestic and foreign stocks.
‘We decided to expand the quantitative and qualitative easing to ensure the early achievement of our price target,’ Kuroda told a news conference, reaffirming the BOJ's goal of pushing consumer price inflation to 2 per cent next year.
‘Now is a critical moment for Japan to emerge from deflation. Today's step shows our unwavering determination to end deflation.’
The BOJ's move stands in marked contrast with the Federal Reserve, which on Wednesday ended its own ‘quantitative easing,’ judging that the U.S. economy had recovered enough to dispense with the emergency flood of cash into its financial system. In a rare split decision, the BOJ's board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($723.4 billion), up by 30 trillion yen.
BOJ Governor Haruhiko Kuroda portrayed the board's tightly-split decision to buy more assets as a preemptive strike to keep policy on track, rather than an admission that his plan to reflate the long moribund-economy had derailed.
But some economists wondered if pushing even more money into the financial system would be effective as long as consumer confidence continues to worsen and demand remains weak.
‘It's clearly a big surprise given Kuroda's repeated insistence that policy was on track and assorted politicians have been warning about the negative side of a weak yen currency,’ said Sean Callow, a currency strategist at Westpac.
‘We salute the BoJ for admitting that they weren't going to reach their goals on inflation or GDP, though we do note that the new policy equates to about $60 billion of quantitative easing per month. This perspective does raise the question of just how much impact monetary policy is having.’
The jolt from the BOJ, which had been expected to maintain its level of asset purchases, came as the government signalled its readiness to ramp up spending to boost the economy and as the government pension fund, the world's largest, was set to increase purchases of domestic and foreign stocks.
‘We decided to expand the quantitative and qualitative easing to ensure the early achievement of our price target,’ Kuroda told a news conference, reaffirming the BOJ's goal of pushing consumer price inflation to 2 per cent next year.
‘Now is a critical moment for Japan to emerge from deflation. Today's step shows our unwavering determination to end deflation.’
The BOJ's move stands in marked contrast with the Federal Reserve, which on Wednesday ended its own ‘quantitative easing,’ judging that the U.S. economy had recovered enough to dispense with the emergency flood of cash into its financial system. In a rare split decision, the BOJ's board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($723.4 billion), up by 30 trillion yen.
Next Story
