On Feb 14, the BOJ announced a “determination to overcome deflation” by setting a new QE policy tied to a goal of price stability with 1% inflation. This is hardly exciting, but it is a start to move their policy more in-line with those of the other major developed countries.
The BOJ has a goal of purchasing more than $123 billion of fixed income assets; however, this is not a target. Nevertheless, there is a structural problem with a aging population which some view not as deflation but a decline in prices because of a shrinking population.
QE policies have been tried in the past, but the BOJ has always been timid about its use. It needs to be more aggressive especially if it wants to lower the value of the yen. There were three rounds of intervention last year, March, August, and October, but after an initial fall, the yen continued to march higher. What is needed is a change in monetary policy not just the use of funds to punish speculators. We may now be seeing this new policy. Coupled with low rates, we may start to see a continued decline in the yen which should help spur the economy.
QE policies have been tried in the past, but the BOJ has always been timid about its use. It needs to be more aggressive especially if it wants to lower the value of the yen. There were three rounds of intervention last year, March, August, and October, but after an initial fall, the yen continued to march higher. What is needed is a change in monetary policy not just the use of funds to punish speculators. We may now be seeing this new policy. Coupled with low rates, we may start to see a continued decline in the yen which should help spur the economy.
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