Bank of Japan Governor Haruhiko Kuroda led a divided board to expand what was already an unprecedentedly large monetary-stimulus program, boosting stocks and sending the yen tumbling.
Kuroda, 70, and four of his eight fellow board members voted to raise the BOJ’s annual target for enlarging the monetary base to 80 trillion yen ($724 billion), up from 60 to 70 trillion yen, the central bank said. An increase was foreseen by just three of 32 analysts surveyed by Bloomberg News. The BOJ also cut its forecasts for inflation and growth in Japan, the world’s third-biggest economy.
Facing projections for failure to reach the BOJ’s 2 percent inflation target in about two years, and with the pressure from a higher sales tax, enlarging the stimulus at some point had been anticipated by analysts for months. Kuroda opted not to telegraph his intentions in recent weeks, leaving today’s move a surprise -- sending the Nikkei 225 Stock Average to the highest level since 2007.
“It was great timing for Kuroda,” said Takeshi Minami, Tokyo-based chief economist at Norinchukin Research Institute, one of two who correctly forecast today’s easing. Minami noted that it follows the Federal Reserve’s ending of quantitative easing, helping highlight the differing paths for the U.S. and Japan, which has the heaviest debt burden of any country. The yen sank 2.1 percent against the dollar to 111.55 as of 6:02 p.m. in Tokyo.
Today’s decision comes almost 19 months after Kuroda unleashed his initial asset-purchase plan, with the intention of doubling the monetary base. That move similarly drove up stocks and undercut the yen. Since then, a more competitive exchange rate has triggered higher corporate earnings, and asset-price gains have expanded Japanese households’ net worth.
Inevitably, some commentators will carp about this move. Sure, there are risks with almost any policy but I credit Kuroda and Japan with a very bold move. Japan has endured over two decades of disinflation and deflation, and the latter was certainly doing far more to erode rather than help Japan’s economy. Japan’s stock market performance since the bubble burst in yearend 1989 painted the picture for all to see.
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