The world’s monetary floodgates are swinging wide open.
After watching Ben S. Bernanke take unprecedented steps for four years to rebound from the worst recession since the Great Depression, the Bank of Japan is signaling that the Federal Reserve’s full-throttle approach to stimulus is the way to end 15 years of deflation.
New BOJ Governor Haruhiko Kuroda’s move this week to embark on record easing means the world’s four biggest developed-market monetary authorities -- the BOJ, the Fed, the European Central Bank and the Bank of England -- are aligned in their commitments to spur growth and return their economies to full strength.
“This is unprecedented on many levels,” said Pippa Malmgren, president and founder of Principalis Asset Management LLP in London and a former financial-market adviser to President George W. Bush. “Not only do you have the most in terms of size of economy or number of central banks, but the effort is a record effort. We’ve never seen such unconventional methods used to create as much inflation as possible.”
The Fed, the ECB and the BOJ have more than doubled the combined size of their balance sheets since the global financial crisis broke out in 2007, expanding them by a total $4.7 trillion. With the BOJ’s action, that amount could be increased by at least a further $1.3 trillion by the end of 2014.
Increased stimulus from central banks may bolster a global economy forecast by the World Bank in January to expand 2.4% this year, down from a previous projection of 3%. At the same time, the level of intervention carries the threat of inflation and asset bubbles as well as tension with emerging markets including China, Brazil and South Korea over exchange rates and capital inflows.
Billionaire investor George Soros and Bill Gross, who runs the world’s biggest bond fund, both warned that the BOJ’s easing risks creating a rout in the yen. Gross said the rest of the world may not be able to tolerate a yen low enough to accomplish the BOJ’s goals.
“Much more depreciation of the yen has to take place in order to get even close to 2 percent” inflation, Gross said yesterday on Bloomberg Television’s “Street Smart” with Adam Johnson and Sara Eisen. “I’m not sure that other G-7 countries are willing to permit that. They’ve to got to control it to some extent,” said Gross, who is based in Newport Beach, California.