The Bank of Japan has announced its most determined effort yet to bring growth to the nation’s economy, giving a clear signal to the rest of the world that the country is committed to ending twenty years of stagnation.
As part of its long term plan to bolster the economy, the Bank of Japan has agreed to double its inflation target to 2% and ease its monetary policy in an effort to meet the demands of the nation’s new government.
The BOJ has long defended its independence, having in previous years resisted government interference, however this time it seems to have listened to new Prime Minister Shinzo Abe.
“This is very good news,” said Brian Redican, from Macquarie in Sydney. “For once, the BOJ has been more aggressive than the market expected. The government is clearly forcing the pace of change, which is no bad thing.
“The BOJ has talked about targeting inflation for years without any success, but these changes are more credible.”
During his election campaign Prime Minister Abe has argued that Japan needs to move quickly and decisively to halt the deflation that economists blame for the stagnation of Japans economy. Deflation encourages consumers to put off their spending as they wait to see if prices will fall further and makes it harder for Japanese business to earn enough income to repay their debts.
The Bank of Japan said that in 2014 it will begin an open ended asset buying programme similar to the one currently being enacted by the US Federal Reserve. In a rare joint statement with the government the Bank announced that it would buy 13trillion Yen (£92billion) in assets each month and would continue for as long as necessary.
“The BOJ will pursue powerful monetary easing by maintaining virtually zero interest rates and purchases of financial assets as long as it deems appropriate,” the statement said.
The main objective of the plan is to weaken the strength of the Yen. The currencies high value has been seen as the main obstacle for Japanese exports and the prospect of growth.
As a result of the news the Yen is set to weaken against all of its most commonly traded peers.
The Pound to Euro exchange rate is currently trading at 1.1863
The Pound to US Dollar exchange rate is currently trading at 1.5844
The Pound to Australian Dollar exchange rate is currently trading at 1.4983
The Euro to US Dollar exchange rate is currently trading at 1.3352
The Euro to Pound exchange rate is currently trading at 0.8426
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