Tokyo - The Bank of Japan unexpectedly boosted its unprecedented monetary easing and will increase purchases of riskier assets in a renewed effort to reflate the world’s third-biggest economy.
In the first policy change since Governor Haruhiko Kuroda began record asset purchases in April last year, the BOJ said it is targeting an 80 trillion yen (R7.9 billion) expansion in the monetary base, up from 60 to 70 trillion yen before, according to a statement in Tokyo today.
The board was split 5 to 4 on the decision.
Only 3 of 32 economists surveyed by Bloomberg News forecast the BOJ would expand stimulus today.
Kuroda is expanding Japan’s asset purchases as the US Federal Reserve ends its quantitative easing.
Slowing inflation highlights headwinds to Japan’s economy that’s prompting officials to consider new language on prices and a cut to growth estimates.
The BOJ later today releases an economic outlook report.
“Since the BOJ has been saying it will act without hesitation and the bank knows large-scale options are limited, they moved early,” said Hideo Kumano, an economist at Dai-ichi Life Research Institute.
“The action is to back up decision for further increase in sales tax.”
The yen dropped and stocks surged in Tokyo following the surprise decision.
The Japanese currency slumped 1.3 percent against the dollar to 110.63 at 2:18 pm.
The Topix index of shares jumped 4 percent.
‘Deflationary Mindset’
The BOJ said it was aiming to pre-empt any risk of a delay in ending Japan’s “deflationary mindset.”
A decline in demand following April’s sales-tax increase and the drop in oil prices are putting downward pressure on prices, the bank said.
The BOJ will continue easing as long as needed to achieve stable 2 percent inflation, the statement said.
The extra monetary stimulus could give Prime Minister Shinzo Abe cover to proceed with a sales-tax increase next year, according Kumano at Dai-ichi Life Research Institute.
The government increased the levy to 8 percent in April from 5 percent, triggering Japan’s deepest contraction in more than five years.
Abe is set to decide by the end of the year whether to raise it to 10 percent to help contain the world’s biggest debt burden.
The price of Dubai crude oil -- a benchmark for Middle East supply to Asia -- has fallen about 24 percent from this year’s peak in June as of October 29.
The 10-year break-even rate, a gauge for inflation expectations in bond market, dropped to 1.039 percentage point this week, the lowest since January 2014. - Bloomberg News