Japan’s central bank surprised the financial world and pleased investors Friday by intensifying its purchases of government bonds and other assets to try to revive a chronically anemic economy.
The Bank of Japan’s move to pump trillions more yen into the financial system is intended to stimulate spending in the world’s third-largest economy. It’s an acknowledgment that Prime Minister Shinzo Abe’s government has failed in its broad efforts to revive growth, especially after a sales tax hike took effect in April. The latest data show consumer spending falling, unemployment rising, and excessively low inflation dipping further.
By injecting more money into the economy, the government hopes to raise expectations of higher inflation and thereby encourage people to spend and fuel growth.
Coinciding with the central bank’s move, Japan’s $1.1 trillion public pension fund acted Friday to move money out of low-yielding bonds and into higher-yielding but riskier stocks to try to improve its investment returns and meet its obligations to a swelling number of retirees. Abe said the move was needed to ensure that the fund can meet its future obligations. Japan is rapidly aging, and its population is shrinking as birthrates decline.
Across the world, investors responded by pouring money into stocks in anticipation that the Bank of Japan’s action would mean lower bond yields, higher stock prices and a cheaper yen, which would make Japan’s goods more affordable overseas.
After the government’s announcements, Japan’s Nikkei 225 stock index soared 4.8 percent to close at a seven-year high, and the dollar rose 2 percent against the yen. European stock markets also jumped, along with the Dow Jones industrial average.
The central bank said it will increase its purchases of government bonds and other assets by between 10 trillion yen and 20 trillion yen ($91 billion to $181 billion) to about 80 trillion yen ($725 billion) annually.
