Tuesday 21 November 2017

Daring asset-buying plan to end Japanese stagnation

Leika Kihara and Tetsushi Kajimoto

THE Bank of Japan has announced its most determined effort yet to end years of economic stagnation, saying it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2pc.

It issued a joint statement with the government promising to reach the inflation goal "at the earliest possible time," drawing praise from Prime Minister Shinzo Abe, who has piled relentless pressure on the central bank to take bolder measures.

The decision to adopt asset buying with no end date had exceeded market expectations, analysts said. But Tokyo stocks fell and, after an initial selloff, the yen rose on investor disappointment that the stimulus would not start until 2014.

Having slashed interest rates close to zero, the BOJ's policy is the latest unorthodox effort by a leading central bank to try to boost an otherwise weak recovery from the global financial crisis and, in Japan's case, overcome more than a decade of deflation.

Mr Abe, who led his Liberal Democratic Party to a landslide victory in December elections and made aggressive budget and monetary stimulus a centrepiece of his campaign, hailed yesterday's action as a game-changer.

Under the BOJ's current programme, it has pledged to supply 101 trillion yen (less than a trillion euro) by the end of 2013 by buying assets and issuing loans.

From 2014, it will switch to an open-ended commitment to buy assets, a move many analysts thought would only come later.

It will buy 13trn yen in assets each month but accounting for redemptions, the total size of the programme will increase by 10trn yen in 2014, a balance that will be maintained beyond 2014.

The BOJ would be emulating the US Federal Reserve's open-ended asset purchases. But analysts were quick to point out that unlike the Fed, the BOJ is delaying the launch of its scheme.

The decision to adopt open-ended asset purchases was unanimous, but doubling the inflation target proved more controversial as two of the nine board members voted against the idea.

Japan has achieved 2pc inflation in only a handful of months since the late 1990s.

The dissenters argued government efforts to boost growth potential must come first. The split underscores the challenges that lie ahead. (Reuters)

Irish Independent

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