Tokyo: The Bank of Japan on Tuesday adopted a two percent inflation target in the face of heavy pressure from the country’s new government, while it also set out plans for indefinite monetary easing.
The moves — set out in a rare joint statement with the government — follows stern calls from the country’s new administration to become more aggressive in kickstarting the anaemic economy.
It also raised its economic growth forecast for the fiscal year to March 2014, to 2.3 percent from a previous 1.6 percent estimate, and held interest rates at zero to 0.1 percent.
However, investors were unimpressed with the broadly expected announcement, with the Nikkei stock index falling 0.44 percent in the afternoon despite an initial surge, and the yen climbing against the dollar and euro.
The yen has been in a steep decline for weeks as markets bet the BoJ would inflate its 101 trillion yen ($1.13 trillion) asset-buying programme, its main policy tool.
“The Bank will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date,” it said.
It was the first time in nearly a decade that the BoJ has expanded monetary policy in consecutive meetings.
The BoJ’s asset purchases usually come with a fixed expiry date, but the new programme will see 13 trillion yen in monthly purchases “for some time” from its launch next year, it said.
The policy is similar to the US Federal Reserve’s unlimited monthly bond-buying programme, known as quantitative easing, unveiled in September.
Japan’s new government, led by the hawkish Shinzo Abe, swept to power last month on a pledge to fix the economy with big spending and to pressure the BoJ into aggressive action to kickstart the world’s third-largest economy.
Tensions have run high between BoJ policymakers and Abe’s administration, with the 58-year-old premier having openly said he would like to turf out BoJ Governor Masaaki Shirakawa, whose terms ends in April, and threatening to change a law mandating the bank’s independence if it does not fall into line.
Japan’s new finance minister, Taro Aso, has accused the bank of dragging its feet on tackling deflation.
After its meeting Tuesday, the BoJ said it changed its previous inflation “goal” to a “target” due to the “increasing awareness regarding the importance of flexibility in the conduct of monetary policy in Japan”.
However, the move was likely to be viewed as the BoJ falling into line with government demands, but it may still fall short of satisfying Japan’s premier.
Two members of the policy board voted against the two percent inflation target demanded by Abe, the bank said.
“The Bank of Japan at least offered a gesture to work together with the government to tackle deflation, mainly by adjusting its rhetoric,” said Yoshikiyo Shimamine, chief economist with Dai-ichi Life Research Institute.
But “the government is likely to step up pressure on the BoJ and this will also be reflected in Abe’s nomination for a new bank governor”.
On Monday, German central bank chief Jens Weidmann lashed out at the what he called government meddling in the affairs of central banks in industrialised nations such as Japan and Hungary.
“We are witnessing disturbing abuses… where the new government is interfering massively in the affairs of the central bank, calling forcefully for a more aggressive monetary policy,” he said.
Aso, the BoJ’s chief and economic revitalisation minister Akira Amari were reported to be due to hold a rare joint press briefing later Tuesday.
Japan has been beset by deflation since the 1990s. It continues to hurt the economy as falling prices cut into corporate profits, leading firms to slash jobs and put off growth-generating capital investment.