By Nick Mann | 19 September 2012
Japan’s central bank has announced a fresh bout of quantitative easing to address stalling domestic growth and increasing uncertainty about the global economy.
The Bank of Japan’s asset purchasing programme will be extended by 10 trillion yen (£78bn), from 70 trillion yen to 80 trillion yen, to reduce the cost of borrowing for households and businesses. Half of the additional assets purchased will be government bonds and the other half will be treasury discount bills, the bank said this morning. The programme will be completed by the end of 2013.
‘These measures in pursuit of powerful monetary easing will make financial conditions for such economic entities as firms and households even more accommodative by further encouraging a decline in longer-term market interest rates and a reduction in risk premiums,’ the Bank said.
‘The Bank expects that, together with the cumulative effects of earlier policy measures, today's decision to enhance monetary easing will ensure the return of Japan's economy to a sustainable growth path with price stability.’
Japan’s stimulus follows the US Federal Reserve’s decision last week to expand its own quantitative easing programme by pumping an additional $40bn into the US economy every month.
Explaining its decision, the Bank of Japan said that after relatively high growth in the first half of 2012, activity had ‘come to a pause’ as the deepening global slowdown affected the export-led economy.
‘There remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the US economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth,’ it said.
‘Furthermore, attention should be paid to the effects of financial and foreign exchange market developments on economic activity and prices.’
Concerns over Japan’s economy have been added to by fears that its territorial dispute with China over a group of uninhabited islands in the East China Sea will affect trade with its fast-growing neighbour.
