Japan’s central bank doubles money supply in another attempt to boost inflation | Economy

Japan’s central bank has said it will massively increase the country’s money supply to spur inflation as it strives to lift the world’s third-largest economy from its slump.

The Bank of Japan (BoJ) pledged on Thursday to hit a 2% inflation target “as soon as possible”.

To do this, the central bank has launched “a new phase of monetary easing both in quantity and quality” which will double the money supply, she said in a press release.

New BoJ Governor Haruhiko Kuroda has pledged to meet the inflation target within two years, heeding Prime Minister Shinzo Abe’s demands to end a long period of inflation once and for all. deflation which has hampered investment and economic growth.

Abe’s government, which took power late last year, has accused former central bank governor Masaaki Shirakawa of hesitating to undertake monetary easing bold enough to put the economy back on track. on rails. The measures announced Thursday at the first policy meeting chaired by Kuroda were in line with expectations and should reassure nervous financial markets about Japan’s determination to pursue its “reflationary” strategy.

The announcement knocked the Nikkei 225 stock average out of red and pushed the yen lower against the US dollar.

The BoJ will conduct money market operations to increase base money by around 60-70 billion yen (£420-490 billion) per year. At the same time, he plans to increase purchases of Japanese government bonds to 50 billion yen a year to encourage lower interest rates, which he hopes will facilitate more lending.

The central bank is also extending the average remaining term of the bonds it buys from three years to an average of seven years. During this time, bonds with all maturities up to 40 years will be eligible for purchase.

As expected, the bank has also expanded the range of assets it can buy, to include real estate investment trusts and riskier exchange-traded funds.

Under the new strategy, the BoJ will end its current asset purchase program, absorbing it into future bond purchases, she said.

Responding to fears that the stimulus program could further increase Japan’s public debt, the statement said government bond purchases would be “executed for the purpose of conducting monetary policy and not for the purpose of financing deficits. budget”.

The BoJ will “review both upside and downside risks to economic activity and prices and make necessary adjustments,” she said.

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