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 in Tokyo. An increase was foreseen by just three of 32 analysts surveyed by Bloomberg News. The BOJ also cut its forecasts for consumer prices.
Facing projections for failure to reach the BOJ’s 2 percent inflation target in about two years, and with the economy under 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 (NKY) 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 US and Japan. The yen sank 1.7 percent against the dollar to 111.05 as of 3:46 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.
Economy Struggle
The bank will purchase exchange-traded funds so their amounts outstanding increase by about 3 trillion yen a year, it said. Japanese real estate investment trusts will be purchased with a view to raising their amounts outstanding by about 90 billion yen annually, according to the bank.
The average remaining maturity of the BOJ’s purchases of Japanese government bonds will increase to about seven to 10 years, three years longer than previously.
What the BOJ’s program has failed to do as yet is lift exports past their peak, or generate enough of an impact on inflation that the BOJ’s 2 percent target was forecast to be in reach. Instead, consumer prices -- stripping out the impact of an April sales-tax increase -- are rising closer to a 1 percent rate.
