October 31st, 2014
Econintersect: In a surprise move the Bank of Japan (BoJ) has increased its already aggressive asset purchase program by 15-30% over the previous monthly purchases of ¥60-70 trillion annually to a new total of ¥80 trillion ($724 million). The response in financial markets was immediate with the yen losing 1.5% against the dollar to trade as high as 110.90, the Japanese 10-year treasury bond surging to yield a new low of 0.45% and the Nikkei 225 Index surging by 5%. The change was made on a split decision with the board approving the change by a 5-4 vote.
The official announcement said that a lower oil price and a weak demand required the move to "banish" (Financial Times word) "a deflationary mind set".
The purchases will be predominantly government Treasury securities (long-term bonds) but the low level of ETFs (electronically traded funds) and real-estate investment trusts will be tripled. The changes were described in the announcement as "open ended".
The head of the BoJ, Governor Haruhiko Kuroda, had been arguing for a combination of higher wages, strengthening expectations of higher inflation and more aggresive corporate pricing were needed to push inflation to the bank's objective of 2%, according to the Financial Times.
The size of the QE (quantitative easing) action can be appreciated by projecting what it would be projected onto the U.S. population or GDP. Normalized to population the size of the program would be the equivalent of $1.8 trillion per year for the U.S. In relation to GDP the correspond amount for the U.S. would be $2.5 trillion per year. At the largest point in the U.S. QE program (just ended) the rate of purchase was $1.0 trillion per year.
A guest on CNBC (Ed Rogers, CEO Rogers Investment Advisors) called the move "Shock and Awe".
Expansion of the Quantitative and Qualitative Monetary Easing (Announcement, Bank of Japan, 31 October 2014)
BoJ stuns investors by expanding monetary easing programme (Ben McLannahan, Financial Times)