BoJ follows Fed and ECB with new pledge

By Ben McLannahan in Tokyo and Claire Jones and Alice Ross in London High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/78c9d522-644b-11e284d8-00144feab49a.html#ixzz2Ilbl3coO The Bank of Japan has bowed to political pressure and followed the lead of the US Federal Reserve and the European Central Bank as it pledged to buy a potentially unlimited amount of government bonds. But the fresh bid to defeat the spectre of deflation by the BoJ failed to weaken the yen, which staged a rebound in global markets as investors expressed their disappointment at the timing of the measures. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/78c9d522-644b-11e284d8-00144feab49a.html#ixzz2Ilbsao3K The Japanese central bank said it would aim to achieve a rate of 2 per cent inflation up from its current goal of 1 per cent at the earliest possible time by shifting to the kind of limitless stimulus embraced by the US Federal Reserve and the ECB. From January next year, when its current Y101tn round of asset purchases had been set to expire, the bank will begin buying Y13tn ($146bn) of mostly short-term government debt each month until that inflation target is met. The BoJ also produced a statement vowing to strengthen the co-operation between the bank and the government to

overcome deflation and achieve sustainable economic growth. The US dollar fell more than 1 per cent to Y88.35 while the euro fell nearly 1 per cent to Y117. The Nikkei 225 stock average closed down 0.35 per cent. Currency investors had piled into short yen trades in recent weeks on expectations the BoJ would take firm action to combat deflation and weaken the yen. Kit Juckes, a currency strategist at Socit Gnrale, said: There is disappointment on three fronts: the inflation target has no fixed time limit, the bond purchases are still skewed to the short end of the curve, and they dont start soon enough. The move follows similar measures by the Fed and ECB in what has become a global race to boost sluggish economies through monetary stimulus and currency devaluation. The Fed last year beefed up its third round of quantitative easing by saying that it would keep buying $45bn of Treasuries in addition to $40bn of mortgage-backed securities each month until there is a substantial improvement in the labour market. The US central bank also said in December it would keep interest rates close to zero until the US unemployment rate falls below 6.5 per cent, from 7.7 per cent today, the first time a major central bank has ever tied its interest rate policy directly to the state of the economy. Meanwhile, the ECB has promised to buy eurozone sovereign debt in potentially unlimited amounts in exchange for commitments from governments to go ahead with structural reforms to their economies in a policy known as outright monetary transactions or OMT. But the role of the government in the measures taken in Japan has drawn criticism. On Monday, the president of Germanys Bundesbank warned that the erosion of central bank independence around the world threatened to spark competitive devaluations of exchange rates. Jens Weidmann cited Japan as one example of alarming infringements by the government towards monetary policy. Since Shinzo Abe became leader of the Liberal Democratic

party last September, he has repeatedly called for the BoJ to use more of the tools at its disposal to engineer a rise in prices. Since the LDPs election victory last month, he has made clear that looser policy from the BoJ is one of the three arrows of his economic policy, along with a big fiscal stimulus package and specific policies as yet unannounced to spur private-sector investment. The Japanese government on Tuesday praised the BoJ decision. Mr Abe said the central banks responsibility for ending deflation had been made clear and added that the move was a step toward bold monetary easing. Ending price declines would give companies and households more incentive to borrow and help the worlds third-largest economy pull out of its latest recession, its third in the past five years. Masaaki Shirakawa, the BoJ governor, described the measures as a resolute advance and said the central bank had strengthened co-operation with the government. The inflation target replaces the BoJs current, vaguely worded goal for price stability over the medium to long term, which was taken to mean a positive range of 2 per cent or lower in year-on-year change in the consumer price index.