Japan PM gets inflation goal, next on list, a new BOJ governor

Jan 23 2013, 10:14 IST
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Bank of Japan would switch to an open-ended commitment to buying assets next year. (Reuters) Bank of Japan would switch to an open-ended commitment to buying assets next year. (Reuters)
SummaryBank of Japan would switch to an open-ended commitment to buying assets next year.

After pressuring Japan's central bank into overhauling monetary policy, Prime Minister Shinzo Abe declared the change "epoch making". Next on his to-do list: find a central bank chief more sympathetic to his views than the current governor.

In its most determined effort yet to end years of economic stagnation, the Bank of Japan said on Tuesday it would switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.

It issued a joint statement with the government promising to reach the inflation goal "at the earliest possible time," drawing praise from Abe who had piled relentless pressure on the central bank to take bolder measures to pull Japan out of deflation and recession.

Although the scale of the measures was greater than markets had expected, investors were disappointed the open-ended buying, similar to a US Federal Reserve policy, would not begin until 2014. That suggested no extra stimulus measures this year.

But Bernd Berg, global currency strategist at Credit Suisse, suggested markets would soon switch their focus to the next stage of Abe's plan and that would keep the yen on a weakening path, a trend that has bolstered the stock market.

"The general upward move in dollar/yen will continue due to expectations of more easing after a new BOJ governor is appointed in April," he said.

Abe led his Liberal Democratic Party to a landslide victory in December elections and his campaign for aggressive budget and monetary stimulus had pushed the yen lower and sparked a stock market rally on hopes a weaker currency would boost exports. He hailed Tuesday's BOJ action as a game-changer.

"It is 'epoch-making' in a sense of a bold review of monetary policy," he told reporters.

Masaaki Shirakawa's term as central bank governor ends in just over two months. He has faced persistent pressure from lawmakers to do more with monetary policy to lift the economy as recent governments steadily built up massive debts, limiting the room for fiscal expansion.

But he has resisted, insisting monetary policy alone can only have a limited impact against the deflation that has come to define just over a decade of economic stagnation in Japan.

Pumping unlimited amounts of cash into the banking system or underwriting government debt, solutions pushed by critics, could thrust Japan into a financial crisis, he has maintained.

Many analysts expect Abe to pressure the BOJ for yet more action, especially in the run-up to upper house elections

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