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Three months into Japan’s bid to reinflate its economy after years of falling prices, the country’s central bank said on Thursday that economic conditions were starting to recover, signaling its confidence that the world’s third-largest economy was on the cusp of a long-awaited turnaround.
It was the first time since January 2011, before Japan’s natural and nuclear disasters in March that year, that the Bank of Japan had ventured to use the word “recover.” The bank’s message was underpinned by a rebound in Japan’s mainstay exports, helped by a weaker yen, and some signs of a broader recovery in consumer spending.
Reflecting its optimism, the central bank’s policy-setting board left its monetary policy unchanged and stuck to its goal of hitting 2 percent inflation in two years. To get money flowing again in the Japanese economy, the bank, led by its governor, Haruhiko Kuroda, has pledged to pump 60 trillion to 70 trillion yen, or about $600 billion to $700 billion, into the economy annually.
Finance ministers from the world’s largest economies endorsed Japan’s recently launched easy-money policy Friday, downplaying previous concerns that the strategy could give Japan an unfair trade advantage.
“We discussed it, but not with the same amount of concern as this past February,” Russian finance Minister Anton Siluanov told reporters after chairing a meeting of the Group of 20 finance ministers and central bank governors. “It was discussed in a very calm manner.”
The G20 group of countries held a meeting here this week during the spring meeting of the International Monetary Fund and World Bank.
New Bank of Japan Governor Haruhiko Kuroda pledged on Thursday to launch full-scale efforts to end deflation in the country, one day after he took the reins of the central bank.
Kuroda, former president of the Asian Development Bank, made the comments when Prime Minister Shinzo Abe asked him to make all-out efforts to pull the country out of deflation, according to the BOJ governor.
Abe delivered letters of appointment to Kuroda and deputies Kikuo Iwata and Hiroshi Nakaso. Iwata, former professor at Tokyo’s Gakushuin University, and Nakaso, former BOJ executive director, also took office Wednesday.
Elected prime minister for a second time in December, Abe has argued forcefully that the central bank is not moving quickly enough to stimulate Japan’s flagging economy. He favors aggressive monetary easing, and made that the centerpiece of his election campaign.
The idea is that further easing, combined with fiscal stimulus, could end years of deflation and coax the world’s third largest economy out of recession.
The strategy got a boost Thursday as Abe nominated Haruhiko Kuroda to succeed Masaaki Shirakawa as Japan’s top central banker.
The Liberal Democratic Party-led government will nominate Asian Development Bank President Haruhiko Kuroda as the next Bank of Japan governor and scholar Kikuo Iwata as one of two deputy governors, official sources said Monday.Both prospective nominees back Prime Minister Shinzo Abe’s focus on aggressive monetary easing to defeat deflation.During a meeting, Abe informed Natsuo Yamaguchi, leader of New Komeito, of his intention to nominate Kuroda, 68, as BOJ chief, and Gakushuin University professor Iwata, 70, and BOJ Executive Director Hiroshi Nakaso, 59, as the central bank’s two deputies, the sources said.
The Bank of Japan set an ambitious 2 percent inflation target and pledged to ease monetary policy “decisively” by introducing open-ended asset purchases, following intense pressure from the country’s audacious new prime minister, Shinzo Abe, who has made beating deflation a national priority.
In a joint statement with the government, the central bank said it was doubling its inflation target to 2 percent and said it would “pursue monetary easing and aim to achieve this target at the earliest possible time.”
The Bank of Japan also said that it intended to purchase assets indefinitely, promising to stick to a program that has allowed the bank to pump funds into the Japanese economy, even with interest rates at virtually zero. The bank’s board voted to keep its benchmark rate at a range of zero to 0.1 percent.
In less than two weeks the Bank of Japan will consider extending its easy monetary policy for the second meeting in a row—something it hasn’t done since 2003.
Under pressure from Japan’s newly elected Prime Minister Shinzo Abe, the BOJ is expected to expand its purchases of government bonds and double its inflation target to 2%. This move is expected to devalue the yen in an effort to boost exports and the broader Japanese economy.
Japan’s monetary policies will hurt Japan’s economy and the U.S. economy, says Peter Schiff, CEO of Euro Pacific Precious Metals.
“Japan doesn’t need more inflation,” he says. “They actually need a stronger yen, higher interest rates. They need to allow their economy to restructure…to shrink government. Instead they’re simply going to do more of what’s been failing for the past two decades.”
He tells The Daily Ticker that if inflation rises in Japan, Japanese citizens will likely unload low-yielding Japanese bonds in favor of higher yielding precious metals and other assets. That could force the BOJ to buy more Japanese government debt instead of U.S. government debt, says Schiff.
The Bank of Japan has delivered its third dose of monetary stimulus in four months in a prelude to more aggressive action next year, as it faces intensifying pressure from the country’s next leader for stronger efforts to beat deflation.
Shinzo Abe, whose opposition Liberal Democratic Party (LDP) won Sunday’s election by a landslide, has put the central bank’s independence on the line by repeatedly calling for a binding 2 per cent inflation target, double its current price goal.
The BoJ expanded its asset-buying and lending programme by 10 trillion yen ($112 billion) to 101 trillion yen, a widely expected move to ease monetary policy in response to the intense political pressure.
It also signalled a review of its current 1 per cent inflation target at its next policy-setting meeting in January, when Abe will have a new cabinet in place ready to negotiate with the central bank.
Liberal Democratic Party President Shinzo Abe, who will become prime minister on Dec. 26, and New Komeito leader Natsuo Yamaguchi agreed Tuesday to compile a large-scale supplementary budget for fiscal 2012 as they kicked off talks to form a coalition government.
Abe also met with Bank of Japan Gov. Masaaki Shirakawa earlier in the day and urged the central bank to set an annual inflation target of 2 percent for the consumer price index.
In their chat held a day ahead of a two-day BOJ Policy Board meeting, Abe also told Shirakawa that his incoming government wants to reach a policy accord with the BOJ under which the bank will set the inflation target and keep pursuing monetary easing until achieving it.
Japan’s central bank gets its first chance this week to respond to the challenge laid down by Shinzo Abe following his party’s landslide victory in a general election on Sunday. Investors are already betting it will flinch.
The Bank of Japan is due to hold its regular monthly policy meeting on December 19-20, giving investors and policymakers outside Japan their first glimpse into how the bank intends to stand up to Abe’s campaign pledge to push it into more radical economic stimulus measures, including a big increase in the kind of money-printing tactics already being employed by the U.S. Federal Reserve.
The bank’s response could influence global financial markets next year, potentially adding the world’s third-largest economy to the growing number of nations experimenting with a policy akin to printing money to revive growth and ease government debt. It will also signal how much independence the central bank can retain under the new government.