Bank of Japan Gov. Haruhiko Kuroda on Friday led a divided board to expand what was already an unprecedentedly large monetary stimulus program, boosting stocks and sending the yen tumbling.
Kuroda, 70, and four of his eight fellow board members voted to raise the BOJ’s annual target for enlarging the monetary base to ¥80 trillion, up from ¥60 to ¥70 trillion, the central bank said in Tokyo. The BOJ also cut its forecasts for consumer prices.
The surprise move sent Tokyo stocks soaring, with the 225-issue Nikkei Stock Average gaining a whopping 755.56 points, or 4.83 percent, from Thursday to close at 16,413.76, its highest finish since Nov. 2, 2007.
The broader Topix index of all first-section issues on the Tokyo Stock Exchange finished up 54.74 points, or 4.28 percent, at 1,333.64.
Facing projections for failure to reach the BOJ’s 2 percent inflation target in about two years, and with the economy under pressure from a higher sales tax, enlarging the stimulus at some point had been anticipated by analysts for months.
Kuroda opted not to telegraph his intentions in recent weeks, leaving Friday’s move a surprise.
“It was great timing for Kuroda,” said Takeshi Minami, Tokyo-based chief economist at Norinchukin Research Institute, who correctly forecast the easing. Minami noted that it follows the Federal Reserve’s ending of quantitative easing, helping highlight the differing paths for the U.S. and Japan.
Friday’s decision comes almost 19 months after Kuroda unleashed his initial asset-purchase plan, with the intention of doubling the monetary base. That move similarly drove up stocks and undercut the yen. Since then, a more competitive exchange rate has triggered higher corporate earnings, and asset-price gains have expanded Japanese households’ net worth, if not their purchasing power.
The bank will purchase exchange-traded funds so their amounts outstanding rise by about ¥3 trillion a year, the bank said. Japanese real estate investment trusts will be purchased with a view to raising their amounts outstanding by about ¥90 billion annually.
The average remaining maturity of the BOJ’s purchases of Japanese government bonds will increase to about seven to 10 years, three years longer than previously.
What the BOJ’s program has failed to do as yet is lift exports past their peak, or generate enough of an impact on inflation to reach the BOJ’s 2 percent target. Instead, consumer prices — stripping out the impact of an April sales tax hike — are rising closer to an official rate of 1 percent.
Also at issue: Prime Minister Shinzo Abe is considering whether to go ahead with the second stage of the tax hike. The first stage bumped it up to 8 percent from 5 percent this year, tipping the economy into its deepest contraction in more than five years. The second bump, scheduled for October 2015, will finally double it to 10 percent.
“Kuroda couldn’t be bullish anymore — inflation has slowed to 1 percent and oil prices are going to weigh on prices,” said Minami at Norinchukin. “Kuroda also thought about Abe’s decision on the sales tax. He really didn’t want Abe to postpone it.”
BOJ officials have warned against failing to move ahead with the sales-tax bump out of concern it would damage confidence in the fiscal sustainability of Japan, the world’s most-indebted nation.
The BOJ said it was aiming to pre-empt any risk of a delay in ending Japan’s “deflationary mindset.” A decline in demand following the April tax hike and the drop in oil prices are putting downward pressure on prices, the bank said.
The BOJ will continue easing as long as needed to achieve stable 2 percent inflation, the statement said.