Bank of Japan unveils aggressive easing - FT.com
The main aim here is to increase inflation, Japan's been suffering from sustained deflation for over 2 decades. It's an effort to jump start investment/borrowing in the Stock Market and business sectors.The Bank of Japan will aim to double the monetary base over two years through the aggressive purchase of long-term bonds, in a dramatic shift.
Haruhiko Kuroda on Thursday announced his arrival as central bank governor with a “new phase of monetary easing”, a move that comes after Prime Minister Shinzo Abe told the bank to target a 2 per cent rate of inflation.
The BoJ said it would boost Japan’s monetary base from Y135tn ($1.43tn) to Y270tn by March 2015, mainly by buying more long-term government bonds. That will raise the average remaining maturity of its holdings from about three years to seven years, keeping downward pressure on yields all along the curve.
It also has the effect though of artificially decreasing the value of Yen (As seen by it's sudden drop this morning). It's already down 3% against the dollar. The US market will make for interesting viewing today.
The 2 consequences of this are:
1. You're running the risk of sparking a trade/currency war with the US and China who will understandably be ticked by this
2. If I'm in Japan and I can now get lots of money at a very low interest rate, I'm going to invest it OUTSIDE Japan where I can benefit from the currency drop.
It's a hell of a gamble all told, but the last 20 years have failed miserably so the feeling appears to be that the risk is worth it.