Kuroda begins easing onslaught to end Japan stagnation

Banknote Rule

Under a so-called banknote rule, the BOJ had pledged to keep the value of its bond holdings below the amount of cash in circulation, excluding securities held under its asset-purchase program. That guideline is “temporarily suspended,” the central bank said.

Only one board member, Takahide Kiuchi, voted against any of Kuroda’s policy proposals.

The new policies will “lead Japan’s economy to overcome deflation that has lasted nearly 15 years,” the central bank said in the statement.

“Today’s decision clearly heralds a regime change at the BOJ,” said Hiroaki Muto, a senior economist in Tokyo at Sumitomo Mitsui Asset & Management. “Kuroda has embarked on an experiment of whether boosting the monetary base can prop up economic growth and eradicate deflation.”

Not everyone is confident that Kuroda’s plan will work. Former BOJ board member Atsushi Mizuno last month said more bond purchases could inflate a market bubble, while Kazumasa Iwata, a former deputy governor, deemed Kuroda’s two-year goal impossible. Prices excluding fresh food haven’t risen 2% in any year since 1997, when a sales tax was increased.

Three Arrows

In December, Prime Minister Shinzo Abe led his party to electoral victory by pledging to fire “three arrows” to end stagnation: monetary stimulus, fiscal spending and cutting regulation to increase investment and hiring.

Population aging and a government debt more than twice the size of the economy are constraints, while the yen’s decline since November is boosting the cost of fuel imports after nuclear power-plant shutdowns. Sales-tax increases set for 2014 and 2015 may damp consumption.

The central bank today said its bond purchases aren’t intended to finance government spending, and emphasized the need for “a sustainable fiscal structure.”

The European Central Bank left interest rates on hold today as policy makers weigh their options to increase stimulus. Officials kept the benchmark rate at a record low of 0.75%, as forecast by 54 of 56 economists in a Bloomberg News survey. Two predicted a cut.

The Bank of England held its key rate at a record low of 0.5% and maintained bond purchases at 375 billion pounds ($568 billion). In the U.S., initial jobless claims will gave the latest reading on the world’s biggest economy.

Bloomberg News

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