TOKYO (AFP) – The Bank of Japan ramped up its vast monetary easing programme Friday – 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.
Speaking after the central bank wrapped up its latest policy meeting, BoJ chief Haruhiko Kuroda described the measures as crucial to keeping Japan on track in its war on deflation, and said further policy moves could follow.
“The Japanese economy is now at a critical moment in its process of getting out of deflation,” he told reporters in Tokyo, adding that the BoJ would “not hesitate” to pull the trigger on more easing if necessary.
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 eye-popping 80 trillion yen annually.
The BoJ also slashed its economic growth forecast by half, and trimmed inflation expectations as a much-touted inflation target looked increasingly out of reach.
The yen dived to 111.23 against the dollar, levels not seen since January 2008, following the announcement while Tokyo’s Nikkei 225 stock index soared more than five per cent to a seven-year high.
The move is the first since the bank launched its huge bond-buying scheme in April last year as a cornerstone of Tokyo’s wider plan to jumpstart the world’s number three economy.
Friday’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.
“As one door closes, another one opens as the saying goes,” UK-based CMC Markets said.
“While we may have seen the end of the Federal Reserve’s bond buying programme for the time being and the ECB (European Central Bank) reluctant to step into the breach, it appears that the Bank of Japan has no such qualms, filling the void left by the US central bank.”
On Thursday the Commerce Department said the US economy expanded an annualised 3.5 per cent in July-September, beating expectations of 3.0 per cent.
Japan’s economy, on the other hand, contracted 7.1 per cent 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 July-September, 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 per cent 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,” the BoJ said in a statement.