With a view to stimulate the economic condition of the country, it was unanimously decided by the Bank of Japan that it would develop its program of asset - purchase by 11 trillion yen today.
With a view to stimulate the economic condition of the country, it was unanimously decided by the Bank of Japan that it would develop its program of asset - purchase by 11 trillion yen today. A similar development took place in the month of September. At that time the monetary stimulus was 10 trillion yen.
The central bank announced that it would raise its existing program of bond buying from to about 91 trillion yen from 80 trillion yen and that before the year 2013 concluded, treasury bills, government bonds and other such purchases would be completed. It also added that the key interest rates would remain the same. The announcement received a rather lack-luster response with the Nikkei dropping by about 1% in the afternoon trading. The reason was that the above move was expected by the stock market. After all, the Minister of Economy of Japan had, in October, repeatedly requested the Central Bank to provide the aforementioned monetary stimulus to its economy. Also, the press had managed to get hold of this information.
The monetary stimulus was done owing to a number of factors including noteworthy economic challenges resulting on account of the euro zone crisis, the almost stagnant economic growth in the U.S. and last but not the least, the Japan-China island dispute issues.
When the national currency is strong, it is actually a burden for an economy that is export-oriented. When in September, Japanese exports dropped to (-) 10.3% y/y; the worst ever since the months after the earthquake that Japan experienced when economic slowdown hit the nation, it had to face the trade deficit balance; that of more buying than selling. Hence it had become necessary to create a situation such that the yen would weaken and quantitative easing seemed the most likely option.
The rate of inflation that was defined by the Bank of Japan was (+) 1%. Japan's deflation cannot be beaten by stakes of even 0%. The Central Bank had decided in 2012 that it would beat deflation by (+) 0.2%. But in August it reached a sixteen month-minimum of (-) 0.3%. The International Monetary Fund had forewarned that Japan would not be able to achieve the target inflation rate without the additional monetary easing.
A representative of the Bank of Japan had acknowledged in September that even with the quantitative easing, it would not be able to meet the above targeted rate. That Japan's business sector is badly hit with the industrial production falling to
(-) 5.3% y/y in August plus negative orders on vehicles and equipment has been a cause of concern.
On 30 October 2012 USD/JPY recovered for a brief period after which it fell down sharply to 79.27 (figures being up to the time of writing this article). It remains to be seen what will be the effect of the additional monetary stimulus.