EUROPE NEWS
FEBRUARY 14, 2012, 5:26 P.M. ET
Japan Central Bank Joins Peers in Opening Spigots
By MEGUMI FUJIKAWA And JON HILSENRATH
The world's major central banks are opening up the monetary spigots once again, pumping new money into their economies to bolster growth.
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The famously conservative Bank of Japan surprised the markets on Tuesday with two new measures to battle the country's long-running decline in prices, or deflation. The Japanese central bank announced a sizable ¥10 trillion ($129 billion) expansion in an asset-purchase program to ¥65 trillion by purchasing more long-term government bonds. Also, for the first time the bank set what amounts to a numerical target for inflation.
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The BOJ action followed the Bank of England's vote last week to increase its government-bond purchases and the European Central Bank's move last week to expand aspects of its program of making cheap three-year loans to European banks. These announcements followed the U.S. Federal Reserve's signaling last month that it could hold interest rates near zero through 2014 and is considering another round of securities purchases to support the U.S. recovery.
The BOJ action followed the Bank of England's vote last week to increase its government-bond purchases and the European Central Bank's move last week to expand aspects of its program of making cheap three-year loans to European banks. These announcements followed the U.S. Federal Reserve's signaling last month that it could hold interest rates near zero through 2014 and is considering another round of securities purchases to support the U.S. recovery.
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Although the central banks were responding to different domestic concerns, all the actions were aimed at strengthening weak economies. While the world's top central bankers are in frequent contact, there was no sign the decisions were coordinated.
Although the central banks were responding to different domestic concerns, all the actions were aimed at strengthening weak economies. While the world's top central bankers are in frequent contact, there was no sign the decisions were coordinated.
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"For all of these economies, we're in the midst of a disappointing recovery," said Nathan Sheets, a Citigroup economist and former head of the Fed's international affairs group. He said he sees a "follow the leader" pattern in the latest moves, with other banks stepping up after the Fed's action.
"For all of these economies, we're in the midst of a disappointing recovery," said Nathan Sheets, a Citigroup economist and former head of the Fed's international affairs group. He said he sees a "follow the leader" pattern in the latest moves, with other banks stepping up after the Fed's action.
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The central bank bond purchases, called quantitative easing, or QE, generally are meant to drive down long-term interest rates and spur spending and investment. The measure can also have the effect of weakening a country's currency, making its exports more competitive on world markets.
The central bank bond purchases, called quantitative easing, or QE, generally are meant to drive down long-term interest rates and spur spending and investment. The measure can also have the effect of weakening a country's currency, making its exports more competitive on world markets.
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In the U.S., the Fed has already conducted two rounds of such bond buying, and some officials are considering more because the recovery remains slow and unemployment is still high, at 8.3%. The U.S. job market has improved, but U.S. auto sales were soft in January and many economists have reduced their estimates of 2011 fourth-quarter growth a bit in recent days.
In the U.S., the Fed has already conducted two rounds of such bond buying, and some officials are considering more because the recovery remains slow and unemployment is still high, at 8.3%. The U.S. job market has improved, but U.S. auto sales were soft in January and many economists have reduced their estimates of 2011 fourth-quarter growth a bit in recent days.
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Critics inside and outside the Fed say the program would do little to boost growth while raising the risks of greater inflation. The Fed's "accelerationist" policy "is risky and the potential costs may be quite high," Charles Plosser, president of the Federal Reserve Bank of Philadelphia and a critic of the Fed's easy money policies, said in a speech Tuesday.
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In Japan's case, the bank hopes the bond purchases encourage more economic activity, causing prices to rise. Another BOJ goal could be limiting the appreciation of the yen, or even weakening the currency, which has risen in recent months.
In Japan's case, the bank hopes the bond purchases encourage more economic activity, causing prices to rise. Another BOJ goal could be limiting the appreciation of the yen, or even weakening the currency, which has risen in recent months.
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"We have entered an era of 'competitive QE,' " said Alan Ruskin, a Deutsche Bank economist, in a note to clients. He noted that Japan's large intervention in foreign-exchange markets last year to restrain the yen's rise drew rebukes from U.S. and European governments. "For the BOJ, 'competitive QE' is at least a partial substitute for direct [foreign-exchange] intervention," Mr. Ruskin said.
"We have entered an era of 'competitive QE,' " said Alan Ruskin, a Deutsche Bank economist, in a note to clients. He noted that Japan's large intervention in foreign-exchange markets last year to restrain the yen's rise drew rebukes from U.S. and European governments. "For the BOJ, 'competitive QE' is at least a partial substitute for direct [foreign-exchange] intervention," Mr. Ruskin said.
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The BOJ may have worried that another round of Fed bond purchases would put new upward pressure on the yen, said Tomohiko Katsu, a trader at Shinsei Bank. "The BOJ apparently wanted to let the yen fall before a further credit easing by the Fed causes a new round of yen-buying."
The BOJ may have worried that another round of Fed bond purchases would put new upward pressure on the yen, said Tomohiko Katsu, a trader at Shinsei Bank. "The BOJ apparently wanted to let the yen fall before a further credit easing by the Fed causes a new round of yen-buying."
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It is by no means certain that Fed officials will approve more bond buying when they next meet on March 13.
It is by no means certain that Fed officials will approve more bond buying when they next meet on March 13.
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Fed Chairman Ben Bernanke has said the decision will depend on the performance of inflation and the broader economy.
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BOJ Gov. Masaaki Shirakawa said that outside pressure wasn't involved in the Japanese central bank's decision.
BOJ Gov. Masaaki Shirakawa said that outside pressure wasn't involved in the Japanese central bank's decision.
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Last week, the Bank of England voted to increase its government-bond purchases by £50 billion ($79 billion), bringing the total amount since the program began in 2009 to £325 billion, equivalent to roughly 20% of U.K. gross domestic product.
Last week, the Bank of England voted to increase its government-bond purchases by £50 billion ($79 billion), bringing the total amount since the program began in 2009 to £325 billion, equivalent to roughly 20% of U.K. gross domestic product.
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Last week, the ECB said it would allow several of the 17 national central banks in the euro zone to expand the types of collateral they accept for ECB loans, which could free as much as €700 billion ($923 billion) in new assets that can be used as collateral for the ECB loans. ECB President Mario Draghi has said he expects "substantial" demand for this month's loan offering.
Last week, the ECB said it would allow several of the 17 national central banks in the euro zone to expand the types of collateral they accept for ECB loans, which could free as much as €700 billion ($923 billion) in new assets that can be used as collateral for the ECB loans. ECB President Mario Draghi has said he expects "substantial" demand for this month's loan offering.
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The BOJ also said it would carry on with its easy money policy to achieve a price stability "goal" of 1% in the consumer-price index for the time being and 2% or lower in the medium to long term. The bank's announcement followed the Fed's decision last month to introduce a long-run inflation goal of 2%, which prompted Japanese lawmakers to turn up the heat on the BOJ to do the same.
The BOJ also said it would carry on with its easy money policy to achieve a price stability "goal" of 1% in the consumer-price index for the time being and 2% or lower in the medium to long term. The bank's announcement followed the Fed's decision last month to introduce a long-run inflation goal of 2%, which prompted Japanese lawmakers to turn up the heat on the BOJ to do the same.
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"The BOJ never succumbs to political pressure when it implements monetary policy," Mr. Shirakawa said.
"The BOJ never succumbs to political pressure when it implements monetary policy," Mr. Shirakawa said.
.He added that the central bank listened to a "wide range of opinions,
including discussion in the parliament and among economists and market
participants."
.—Brian Blackstone contributed to this
article.
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