Bank of Japan expands monetary easing plan as economy slows
AFP - The Bank of Japan ramped up its vast monetary easing programme yesterday, sending the yen plunging and stocks soaring in a surprise move aimed at reviving growth just as the Federal Reserve winds down its own stimulus spree.
After a one-day meeting, policymakers said they would inflate the central bank’s asset-buying stimulus plan by as much as 20 trillion yen ($182 billion), bringing it to an eyepopping 80 trillion yen annually.
The BoJ also slashed its economic growth forecast by half, and trimmed inflation expectations as a much-touted price target aimed at conquering years of deflation looked increasingly out of reach.
The yen dived to 111.13 against the dollar, levels not seen since January 2008, following the announcement while Tokyo’s Nikkei 225 stock index soared more than five percent to a seven-year high.
The move is the first since the bank launched its huge bond-buying scheme in April last year as part of Tokyo’s wider plan to conquer years of deflation and jumpstart the economy. Yesterday’s decision throws into focus the sharp contrast of fortunes for the US and Japanese economies after the Federal Reserve on Wednesday brought an end to six years of bond-buying and considers an interest rate hike.
And on Thursday the Commerce Department said the US economy expanded an annualised 3.5 percent in JulySeptember, beating expectations of 3.0 percent.
Japan’s economy, on the other hand, contracted 7.1 percent on an annualised basis in the second quarter -- its steepest quarterly drop since the 2011 quake-tsunami disaster -- as it was hit by a sales tax hike in April.
That has stoked fears about another downturn in JulySeptember, which would technically put the country in recession. A BoJ statement said the decision on Friday passed by a narrow 5-4 majority vote. The bank acknowledged that the levy hike had put in trouble its target of 2.0 percent inflation by sometime next year, and said that had prompted Friday’s decision. “Japan’s economy has continued to recover moderately as a trend and is expected to continue growing at a pace above its potential,” it said.
“However, on the price front, somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently.
“If the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed.”
It added: “To pre-empt manifestation of such risk and to maintain the i mproving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative monetary easing (QQE).”
The move came after official data earlier yesterday showed September inflation slowed and household spending slumped in September as consumers tighten their belts.
“These new easing measures were a surprise, big news,” said Taro Saito, a senior economist at NLI Research Institute.
“A lower yen raises the price of imports, which tends to push overall inflation higher. But the inflation target was always far fetched. It would be tough to achieve two-percent inflation in two years.”
On Tuesday, th e Bo J ’s deputy governor Kikuo Iwata acknowledged that the timeline may not be attainable, and said the BoJ’s schedule was not as rigid as Japan’s always-on-time train services.
“Monetary policy is aimed at influencing people’s behaviour,” he told a parliamentary committee.
“It can’t be like a train schedule.”
While BoJ governor Haruhiko Kuroda has been upbeat on reaching t he i nflation target, doubts have been growing about the timeline as the economy runs out of steam.
Also yesterday, the BoJ slashed its economic growth outlook to 0.5 percent in the year to March, well down from a 1.0 percent growth forecast in July, citing lacklustre exports and slack consumer spending.
It also trimmed its fiscal year inflation outlook to 1.2 percent from 1.3 percent, and t o 1.7 percent from 1.9 percent in fiscal 2015.