Bank of Japan Governor Haruhiko Kuroda began his onslaught to end two decades of economic stagnation and 15 years of deflation as the central bank pledged unprecedented easing, driving the yen down by the most since October 2011.
The BOJ plans to purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base, which includes cash in circulation, in two years, the central bank said in Tokyo today. That exceeded economists’ median estimate of 5.2 trillion yen a month and is the biggest move since quantitative easing began in 2001.
Stocks surged as Kuroda won investors’ confidence in a campaign to revive the world’s third-biggest economy, mired in three recessions in the past five years. The BOJ set a two-year horizon for the price target under a “new phase of monetary easing,” as the governor won the backing of a board mostly appointed by the previous government.
“It’s fast and furious,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, and formerly of Goldman Sachs Group Inc. “The specific mention of a two-year time horizon was a positive surprise.”
The Nikkei 225 Stock Average rose 2.2% and is up 45% from mid-November. The yen slid 2.6% to 95.45 per dollar at 8:50 p.m. in Tokyo, the largest one-day decline since October 2011. Yields on 10-year Japanese bonds touched a record low of 0.425%.
The BOJ said it changed the target for money-market operations from the overnight call rate to the monetary base -- cash in circulation and the money that financial institutions have on deposit at the central bank. It predicts the measure will grow to 270 trillion yen by the end of 2014. The BOJ dropped limits on the maturities of debt it buys.
The average remaining maturity of government bonds to be purchased by the bank will be about seven years under the new plan, compared with less than three previously. Monthly bond purchases stood at an average of about 3.4 trillion yen in the first quarter, according to data compiled by Bloomberg.
At stake is sustaining growth. Lawmakers can question Kuroda tomorrow on his tactics, during his second set of confirmation hearings in parliament.
The bank will increase holdings of exchange-traded funds and real-estate investment trusts, by 1 trillion yen and 30 billion yen per year respectively. The BOJ scrapped the asset-purchase program set up by former Governor Masaaki Shirakawa that was previously its main tool for easing, and said it will buy bonds with maturities of as much as 40 years.