TOKYO (AFP) – The Bank of Japan’s surprise move to inflate its already huge stimulus programme exposes the cracks in Tokyo’s plan to conquer deflation and boost growth, economists say, but it may give the government room to hike sales taxes again.
On Friday, the central bank said it would widen its asset-buying plan by as much as 20 trillion yen ($182 billion), bringing it to an eye-popping 80 trillion yen annually, sending the yen into a freefall and stocks soaring.
The BoJ also halved its annual economic growth forecast and trimmed consumer price expectations as a much-touted inflation target looks increasingly out of reach and Premier Shinzo Abe’s plan to kick-start the economy stalls.
“The move by the BoJ shows that Abenomics is facing big problems. The economy is not growing, and is not showing the power to grow,” said Ivan Tselichtchev, an economics professor at Japan’s Niigata University.
“Thus the government and BoJ again have to resort to monetary alchemy. Again, it will have a stimulating effect, but only in the short term.”
Friday’s decision also threw into focus the sharp contrast of fortunes for the US and Japanese economies after the Federal Reserve last month brought an end to six years of bond-buying and is now considering an interest rate hike. The move – which is an attempt to stimulate growth by pumping massive amounts of money into the economy – is the first since the bank unveiled the unprecedented easing scheme in April last year.
The programme – and a target of 2.0 per cent inflation by next year – were cornerstones of the government’s wider platform to turn around years of deflation and kick-start the economy.