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Bank of Japan takes bold step

April 4, 2013 at 12:36 PM   |   Comments

TOKYO, April 4 (UPI) -- The Bank of Japan's new governor announced a quantitative easing program he said was taking the concept to a new level to try to end deflation.

"This is monetary easing in an entirely new dimension," Gov. Haruhiko Kuroda said of the program the bank announced Thursday, which includes doubling the bank's holdings of government bonds by 2015 in an attempt to push inflation to a 2 percent rate "at the earliest possible time."

The move will essentially double the amount of yen in circulation. With that much money available, demand for consumer goods is expected to rise.

The move will also devalue the yen, which will make it more expensive for Japanese consumers to buy imported goods.

Simultaneously, it will make exports cheaper in other countries, giving Japan's export-oriented economy a boost.

Other countries tend to accept quantitative easing programs better if they are viewed as primarily a tool to help the domestic economy, rather than as a way to give their exports businesses a discount.

In Japan's case, putting more money into circulation is intended to turn around years of falling prices, a situation known as deflation.

With deflation, consumers do not line up in front of stores because prices are low. They stay at home and do not shop, because if they wait longer, prices may go even lower.

An entire population hesitating to make purchases does not help an economy to grow.

Many were wondering how bold a step the new BOJ governor would take.

"Incremental steps of the kind we've seen so far weren't going to get us out of deflation. I'm certain we have now adapted all policies we can think of to meet the 2 percent price target," Kuroda said.

© 2013 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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