Japan’s ‘shock and awe’ to end years of weak growth. Will rival central banks print more money to follow suit?

By HUGO DUNCAN

The Bank of Japan unleashed on Thursday an unprecedented £900billion plan to inject life into the world’s third largest economy and end two decades of stagnation.

New Governor Haruhiko Kuroda said he would nearly double the amount of money circulating in the Japanese economy by the end of 2014 to £1.85trillion.

It came as Japan – under Prime Minister Shinzo Abe – stepped up its battle to end years of weak growth and falling prices and hit a new 2 per cent inflation target.

Changing of the guard: Do central bank reshuffles put more money printing on the agenda?Changing of the guard: Do central bank reshuffles put more money printing on the agenda?

The audacious move was branded ‘shock and awe’ tactics and ‘a huge economic experiment’ by analysts.

It came amid mounting pressure on central banks around the world to restore the global economy to health at a time when governments are straining under ballooning debts.

 

The Bank of England has been handed new powers to revive the British economy – with many observers expecting action when incoming governor Mark Carney succeeds Sir Mervyn King in July. Kuroda, who has been in the job just over two weeks, accused his predecessors of being too timid.

‘The previous approach of incremental easing wasn’t enough to pull Japan out of deflation and achieve 2 per cent inflation in two years,’ he said. ‘This time, we took all necessary steps to achieve the target.’ Izumi Devalier, Japan economist at HSBC, said: ‘The result is nothing short of regime change.’

Brian Jackson, global foreign exchange strategist at Coutts, said: ‘Kuroda has come out with guns blazing.’ Central banks have adopted far more aggressive policies in recent years to stimulate growth in the wake of the financial crisis and Great Recession.

European Central Bank President Mario Draghi has proved more forceful than his predecessor Jean-Claude Trichet, declaring that there are no ‘taboos’ in his quest to save the euro.

Carney, who currently runs the Bank of Canada, will face pressure to act when he arrives at the Bank of England this summer.

The monetary policy committee left rates at 0.5 per cent on Thursday and decided against another round of quantitative easing having already pumped £375billion into the economy. But analysts believe a renewed push for growth is coming – including the use of new tools such as offering ‘guidance’ over how long interest rates will be rock bottom.

James Knightley at ING said: ‘The Bank chose not to take advantage of the increased flexibility granted to them and offer forward guidance on interest rates. This is more likely to be implemented by Mark Carney when he takes over given his previous use of it in Canada.’

Read more@MailOnline



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