The Bank of Japan (BoJ) has unveiled an aggressive plan against deflation, in line with
prime minister Shinzo Abe’s
requirement that the central bank make achieving a 2% inflation target within two years a top political priority.
The BoJ said that it aimed to achieve the new inflation target at “the earliest possible time” and would expand its balance sheet by purchasing longer-term debt and securities such as Exchange Traded Funds (ETFs). Other measures include a merger of its asset purchase programmes and the suspension of a rule prohibiting the purchase of longer-term debt.
The new purchases, which go some way beyond market expectations, will amount to ¥60-70 trillion annually and will double the BoJ’s monetary base over a two-year period. By March 2015, the BoJ aims to double Japan’s monetary base from ¥135 trillion to ¥270 trillion, raising the average remaining maturity of its holdings from three years to seven years.
“We can’t escape deflation with the incremental approach that’s been taken until now,” said the central bank’s new governor Haruhiko Kuroda. “We need to use every means available.”