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New Bank of Japan governor seeks to end long spell of deflation which has hindered investment and economic growth
The Japanese central bank has said it will massively expand the country’s money supply to spur inflation as it strives to get the world’s third-largest economy out of its slump.
The Bank of Japan (BoJ) on Thursday vowed to achieve a 2% inflation target at “the earliest possible time”.
To do so, the central bank has launched “a new phase of monetary easing both in terms of quantity and quality” that will double the money supply, it said in a statement.
The new BoJ governor, Haruhiko Kuroda, has vowed to meet the inflation target within two years, heeding demands from the prime minister, Shinzo Abe, to once and for all end a long spell of deflation which has hindered investment and economic growth.
Abe’s government, which took power late last year, accused the previous central bank governor, Masaaki Shirakawa, of balking at undertaking bold enough monetary easing to get the economy back on track. The steps announced on Thursday under the first policy meeting chaired by Kuroda were in line with expectations and are likely to reassure jittery financial markets of Japan’s resolve to push ahead with its “reflationary” strategy.
The announcement pulled the Nikkei 225 stock average out of the red and sent the yen lower against the US dollar.
The BoJ will conduct money market operations to increase the monetary base by about ¥60tn to ¥70tn (£420bn to £490bn) a year. At the same time it plans to increase purchases of Japanese government bonds to total ¥50tn a year to encourage interest rates to decline, which it hopes will facilitate more lending.
The central bank is also extending the average remaining maturity of the bonds it purchases from three years to an average of seven years. Meanwhile, bonds with all maturities up to 40 years will be eligible for purchase.
As expected, the bank also extended the range of assets it can purchase, to include more risky real estate investment trusts and exchange-traded funds.
As part of the new strategy, the BoJ will end its current asset-purchasing programme, absorbing it into the future purchases of bonds, it said.
Answering concerns that the stimulus programme would further raise Japan’s public debt, the statement said that the government bond purchases would be “executed for the purpose of conducting monetary policy and not for the purpose of financing fiscal deficits”.
The BoJ will “examine both upside and downside risks to economic activity and prices and make adjustments as appropriate”, it said.