BoJ to pump $1.4 trillion into Japanese economy in 2 years

The Bank of Japan today announced a massive dose of monetary stimulus, with a promised infusion of $1.4 trillion (929.3 billion pounds) into the economy in less than two years, a bold gambit that had the immediate effect of pushing down the yen. It also led to bond yields falling to record lows.

New governor Haruhiko Kuroda set the BOJ on a course of open-ended asset buying and said the monetary base would about double to 270 trillion yen (1.92 trillion pounds) by end-2014 in a drastic action aimed at putting an end to decades of stagnation.

According to analysts, the US Federal Reserve might buy more debt under its quantitative easing, but with the Japanese economy about a third of the US economy, the scope of Kuroda's "Quantitative and Qualitative Monetary Easing" was unmatched.

"This is an unprecedented degree of monetary easing," a smiling Kuroda told a news conference after his first policy meeting at the helm of the central bank.

"We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 per cent inflation in two years were taken today," he said.

One of these was to abandon interest rates as a target and emerge as the only major central bank to primarily focus on the monetary base - the amount of cash it pumped into the economy. A similar policy had been adopted by the bank in 2001-2006, but at the time it was much subdued.

Meanwhile, Asian stock markets ruled mostly lower today, as shares in Seoul continued to struggle amid heightened tensions surrounding North Korea. The Nikkei, however, rebounded after the Bank of Japan's announcement of additional easing measures.

The central bank set a 2 per cent inflation target for achievement in about two years, even as it took additional easing action, such as increasing Japanese government bond holdings at an annual pace of ¥50 trillion.

Junko Nishioka, chief economist at RBS Securities Japan, said in a note that the market had concerns about the BOJ announcing any policy actions today, but the BOJ's decisions exceeded investor expectations.

BOJ's commitment to adopt 'monetary base control' clearly was a strong message to the markets about enhancement of the monetary policy, in terms of both working on asset prices and controlling market inflation expectations, he said.

The Nikkei Stock Average stood 2.2 per cent higher at 12634.54, with financial and real estate-related shares showing the biggest impact from the new policy. Among banks, Mitsubishi UFJ Financial Group added 5.5 per cent, while Mizuho Financial Group gained 5.1 per cent.