The Bank of Japan’s latest splurge surprised not only economists, but also many of its own higher ups.
Two weekends back, BOJ board members were shocked to learn of Governor Haruhiko Kuroda’s plan to hike their organization’s annual spending by 10 trillion yen, bringing “its asset buying program to 80 trillion yen ($726bn; £454bn) a year, up from the previous rate of 60-70 trillion yen.” Several experts were equally taken aback, including Sean Callow, a currency strategist at Westpac, who told reporters, “It’s clearly a big surprise given Kuroda’s repeated insistence that policy was on track…”
Other pundits say that Japan’s economic course correction, no matter how surprising, couldn’t have come soon enough, and might help in “lifting the country’s economy out of a decades-long doldrum and keep[ing] deflation at bay.” Meanwhile, a Japan Times article noted that those deflation woes had kept the Bank of Japan from attaining its 2 percent inflation target since 2012. Such shortcomings, coupled with a looming sales tax that could contract the economy further, apparently spurred Kuroda into pre-emptive—albeit somewhat covert—action.
For Japanese investors, the surprise was a pleasant one. The same Times article said the Nikkei Stock Average gained a “…whopping 755.56 points, or 4.83 percent… its highest finish since Nov. 2, 2007,” before adding that the “… broader Topix index of all first-section issues on the Tokyo Stock Exchange finished up 54.74 points, or 4.28 percent, at 1,333.64.” Bloomberg also noted that Nikkei’s biggest investor, Fast Retailing Co. chief shareholder Tadashi Yanai, will rake in 3 trillion yen ($25.9 billion).
But that rampant enthusiasm was mostly restricted to Japan’s business elite. While one report highlighted the ensuing jumps in European and North American stocks, it also cautioned that those increases paled in comparison to that of Japan’s. Meanwhile, neighboring nations, especially South Korea, voiced concerns that “Japan’s ultra-loose monetary policy was aimed at weakening the yen … [and] giving its exports an unfair trade advantage.”
But Prime Minister Shinzo Abe shrugged off those critiques last Tuesday at Beijing’s APEC conference, saying: “the BOJ’s stimulus program is aimed at ending deflation and supporting domestic demand … Japan abides by the agreement of G7 and G20 nations that currency rates ought to be determined by markets. I understand other countries do so too.”