'Shock and awe' tactic to battle downturn
The Bank of Japan has launched "shock and awe" tactics to pull the world's third-biggest economy out of its deflationary spiral with a hugh expansion of its money-printing programme.
The yen plunged more than 2% after the Bank of Japan's new governor Haruhiko Kuroda – under pressure from Prime Minister Shinzo Abe – embarked on plans to reflate the economy and hit a 2% inflation target, against minus 0.7% in February, within two years.
Against the backdrop of an economy which has been stagnant or shrinking since the second quarter of last year, Japan's central bank will nearly double the size of its bond purchases, double the money supply and vastly extend the breadth of the assets it buys to include private sector debt.
The bank's so-called "banknote rule", under which it keeps government bond purchases below the amount of banknotes in circulation, will also be torn up.
Kuroda called it "a new phase of monetary easing both in terms of quantity and quality" to "drastically change the expectations of markets".
Tokyo's Nikkei average soared more than 2% on the bank's announcement, on expectations that the slump in the yen will give a shot in the arm to Japan's export-led economy.
It is hoped the aggressive monetary policy efforts will inflate prices and encourage spending. They come alongside increased public spending from Abe to boost demand and make Japan's debt-laden economy more competitive.
Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, described the move as a "shock and awe policy".
While he warned that the policy was by no means guaranteed to bring success, he said: "They're doing a whole lot more. What they've down up to now has been a bit grudging. They are doing things on a far bigger scale."