Daring monetary leap by Bank of Japan
(09 April 2013 – Japan) The Bank of Japan (BoJ) launched a daring monetary experiment to double the money base in the country within two years to overpower deflation and catapult Japan’s economy out of its slump.
The blast of money is expected to reignite the yen ''carry trade'' and flood global markets with up to US$2 trillion (A$1.9 trillion) of pent-up savings, giving the entire world a shot in the arm.
The BoJ's new team under Governor Haruhiko Kuroda, voted eight-to-one for a double dose of ''quantitative and qualitative monetary easing'' - vowing to inject stimulus for ''as long as it takes'' to break the deflation psychology.
The monetary base will rocket from 29 percent to 56 percent of gross domestic product by next year.
The pace of bond purchases will rise to ¥7.5 trillion (A$74.3 billion) a month, almost three times the US Federal Reserve's stimulus as a share of the economy. The maturities will stretch to 40 years, ending the three-year cap that has hobbled policy.
Japan's legendary housewives and grannies - so-called ''Mrs Watanabe'' - lead retail investors with another trillion dollars waiting to venture abroad once again in search of yield. In the 2003-08 cycle, the money leaked into everything from Australian ''Uridashi'' bonds and Icelandic debt, to London property.
Hiroaki Muto, from Sumitomo Mitsui, said the Kuroda experiment could go badly wrong if markets started to think the BoJ was printing money to cover fiscal deficits.
Japan is the only major country yet to start retrenchment. Prime Minister Shinzo Abe is boosting spending by an extra 2 percent of GDP to kick-start recovery, though the budget deficit is already 9 percent.
Japan has had no trouble raising funds from its captive debt markets so far, but ageing costs are rising and public debt will reach 245 percent of GDP this year.
The International Monetary Fund (IMF) said Japan may hit the buffers unless it changes course soon. A 200-basis-point rise in borrowing costs would play havoc with public finances.
Kuroda insisted there was no risk of a ''sudden'' jump in long-term rates or a fresh asset price bubble.
Japanese officials say monetary stimulus should protect against a debt compound trap by cutting ''real'' rates.
The BoJ's new team under Governor Haruhiko Kuroda, voted eight-to-one for a double dose of ''quantitative and qualitative monetary easing'' - vowing to inject stimulus for ''as long as it takes'' to break the deflation psychology.
The monetary base will rocket from 29 percent to 56 percent of gross domestic product by next year.
The pace of bond purchases will rise to ¥7.5 trillion (A$74.3 billion) a month, almost three times the US Federal Reserve's stimulus as a share of the economy. The maturities will stretch to 40 years, ending the three-year cap that has hobbled policy.
Japan's legendary housewives and grannies - so-called ''Mrs Watanabe'' - lead retail investors with another trillion dollars waiting to venture abroad once again in search of yield. In the 2003-08 cycle, the money leaked into everything from Australian ''Uridashi'' bonds and Icelandic debt, to London property.
Hiroaki Muto, from Sumitomo Mitsui, said the Kuroda experiment could go badly wrong if markets started to think the BoJ was printing money to cover fiscal deficits.
Japan is the only major country yet to start retrenchment. Prime Minister Shinzo Abe is boosting spending by an extra 2 percent of GDP to kick-start recovery, though the budget deficit is already 9 percent.
Japan has had no trouble raising funds from its captive debt markets so far, but ageing costs are rising and public debt will reach 245 percent of GDP this year.
The International Monetary Fund (IMF) said Japan may hit the buffers unless it changes course soon. A 200-basis-point rise in borrowing costs would play havoc with public finances.
Kuroda insisted there was no risk of a ''sudden'' jump in long-term rates or a fresh asset price bubble.
Japanese officials say monetary stimulus should protect against a debt compound trap by cutting ''real'' rates.
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