The Bank of Japan (BoJ) stunned the financial markets by unexpectedly expanding its programme of quantitative easing. The bank\u2019s existing measures, a \u201cdifferent dimension\u201d of easing from past efforts, were already daringly bold. Now it will swell Japan\u2019s monetary base at an even faster pace, by around \u00a580 trillion ($712 billion) each year, up from \u00a560 trillion-70 trillion currently. To do so, it will hoover up still larger quantities of Japanese government bonds (JGBs).<\/p>\n
The bank\u2019s action is also an admission of partial failure thus far. Its bond-buying has succeeded in sparking some inflation, yet its goal of achieving price rises of 2% a year by around April 2015 remains a distant possibility. Along with the government, it badly underestimated the dampening effect of a hike in the consumption tax in April this year, which caused the economy to shrink by 1.7% in the second quarter.<\/p>\n
Economists had started to question Mr Kuroda\u2019s oft-stated commitment to banishing Japan\u2019s entrenched deflationary psychology. Mr Kuroda admitted that matters had reached a \u201ccritical point\u201d, as the bank\u2019s efforts were losing momentum.<\/p>\n
Now a fresh round of no-holds-barred QE will immediately boost Mr Abe\u2019s economic plan. The Nikkei stock index\u2014a vital gauge of success for the government\u2014rose to its highest level in seven years on the news. The yen lurched further downwards, which will help import inflation.<\/p>\n
As well as buying an additional \u00a530 trillion of JGBs a year, the BoJ will also purchase more risky assets in the form of exchange-traded funds and investment trusts in Japanese property.<\/p>\n
A motivation for Mr Kuroda\u2014in addition to visibly slowing inflation and weak growth\u2014may have been an intensifying political debate over whether or not Mr Abe should again raise the unpopular consumption tax from 8% to 10% in 2015.<\/p>\n
But this latest round of QE is not without its detractors. In April 2013 the BoJ\u2019s nine-strong policy board voted unanimously in favour of its radical new monetary drive, this time it revealed a rare split.<\/p>\n
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