The Bank of Japan on Friday announced that it will boost the size of its asset purchase program by ¥5 trillion. The decision follows an earlier decision in February to add ¥10 trillion to the program. As a result, the total size of the program will be raised to ¥70 trillion.
By purchasing more national bonds and financial instruments, the BOJ hopes to increase the amount of money injected into markets, thus lowering both interest rates and the yen's value against other currencies. It is hoped that the BOJ's step will eventually help stimulate economic activities and pull the economy out of deflation. The BOJ also decided to maintain the key interest rate at a range of zero to 0.1 percent.
The BOJ must be aware that its monetary policy is largely responsible for Japan's deflation, believed to have continued since around 1998. It should not hesitate to continue monetary easing until the economy has a bright prospect. It should pay due attention to the fact that deflation, characterized by low demand and excess supply, suppresses business profits, lowers wages and capital investment, decreases employment and causes bankruptcy.