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Japanese has no special word for “dove”, lumping the white birds in with pigeons. No wonder its monetary policy is tighter than many would wish.
Shinzo Abe, Japanese prime minister, thinks the pigeons have triumphed. He described yesterday’s easing by the Bank of Japan as “epoch-making”.
True, the BoJ doubled its inflation goal to 2 per cent, and formalised it as a “target” for the first time. It also followed the US Federal Reserve and the European Central Bank into potentially unlimited easing, setting no end date for its asset purchase programme.
Yet, nothing will change until next year – and then the BoJ plans to do less, not more. Asset purchases next year will run at Y800bn ($9bn) a month after netting off maturing bills, against Nomura’s estimate of Y3tn a month this year. The BoJ expects zero 2015 net purchases. No mention of overseas buying to weaken the yen, either. This is not QE∞.
No wonder the markets were unimpressed. The yen had its best day against the dollar since the aftermath of the 2011 earthquake and tsunami, strengthening to Y88.7. Bond yields tumbled, with the two-year and five-year yields coming close to 2003 record lows, and shares fell.
The question for investors is whether the next BoJ governor, due in April, will do more to boost inflation and weaken the yen. If he acts, perhaps he could truly usher in a new era.
But since Japan’s bubble burst in 1990 the BoJ has been far more cautious than western central banks. Real two-year rates were only briefly negative, thanks to deflation; in the UK and US they have been negative for four years. The US, UK and eurozone also expanded their balance sheets far more quickly in response to crisis than Japan did.
Tuesday’s softly-softly approach shows the BoJ lacks commitment to its 2 per cent target, given its forecasts for inflation two years ahead remain below 1 per cent (before tax rises). To act, the next governor will still have to fight the hawks at the bank.
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