Bank of Japan's Haruhiko Kuroda in aggressive growth move

  • 4 April 2013
  • From the section Business
Haruhiko Kuroda
Image caption This is is the first policy meeting chaired by new governor Haruhiko Kuroda

Japan's central bank has surprised markets with the size of its latest stimulus package, as it tries to spur growth and end years of falling prices.

The move was seen as a clear signal by the bank's new boss, Haruhiko Kuroda, that he was willing to spend heavily to achieve an inflation target of 2%.

The bank said it would increase its purchase of government bonds by 50 trillion yen ($520bn; £350bn) per year.

That is the equivalent of almost 10% of Japan's annual gross domestic product.

The bank added that it would buy longer-term government bonds as well as riskier assets.

"The previous approach of incremental easing wasn't enough to pull Japan out of deflation and achieve 2% inflation in two years," Mr Kuroda said.

"This time, we took all necessary steps to achieve the target."

Right moves?

Japan's economy has been hurt by a variety of factors, not least decades of deflation or falling prices.

Falling prices discourage people from spending and companies from investing, and that has trapped Japan in a cycle of sluggish growth and recession.

Given the slowdown in Japan's export sector in recent years, reviving domestic demand has become ever more crucial to spurring a fresh wave of economic growth in the country.

Prime Minister Shinzo Abe has also said that stoking inflation is key to boosting domestic consumption.

Under pressure from the government, the central bank had doubled its inflation target to 2%, earlier this year.

Analysts said that while achieving that target was an uphill battle, the central bank's policies indicated that it was moving in the right direction.

Media captionDr Seijiro Takeshita, of Mizuho International, says the BOJ may need to do more

"Achieving 2% inflation in two years remains quite difficult. But the possibility of that target being achieved is now much higher than before with these measures," said Yoshimasa Maruyama, chief economist as Itochu Economic Research Institute.

The yen fell against the US dollar, and Tokyo's Nikkei 225 index rose 2.2% on the central bank's decision, indicating markets were reacting positively to the extent of the stimulus measures.


Prime Minister Shinzo Abe, who was elected last year, has been pushing for the Bank of Japan to do more to help the economy.

His plan, a combination of big government spending as well as an aggressive central bank asset buying programme, has been dubbed Abenomics.

Mr Kuroda, who was nominated by Mr Abe for the top job at the central bank, is seen as sharing those views, which are a departure from the BOJ's previous stance.

On Thursday, the bank said it would increase its purchases of Japanese government bonds and extended the average maturity of the bonds it purchases from three years to seven years.

The bank added that it would also buy relatively riskier assets such as exchange-traded funds and real estate trust funds.

The decisions passed with unanimous votes from the board of the central bank, despite earlier reports that Mr Kuroda may not win the backing of his colleagues for the measures. The strength of support is an indication that this would mark the beginning of Mr Kuroda's shift towards more aggressive monetary easing.

Mr Kuroda has previously said that he would do "whatever it takes" to drive growth.

Analysts said the moves by the central bank indicated that he was delivering on the earlier rhetoric.

"Kuroda made good on his promise of boosting monetary easing in terms of both volume and types of assets that the bank purchases," said Junko Nishioka, chief Japan economist at RBS Securities in Tokyo.

"Today's decision was far more than market expectations given some scepticism among market players beforehand that the BOJ may not decide on aggressive policy steps this week."

However, some observers have expressed concern that this new strategy may leave Japan, which already has the largest debt pile of any industrialised nation, even more in the red.

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