Japan launches QE8 as 20-year slump drags on

The Bank of Japan (BoJ) is to buy a further 10 trillion yen (£79bn) of bonds, bringing the total accumulated so far in its battle against deflation to 80 trillion yen, or 20pc of Japanese GDP.

Jun Azumi, Japan’s finance minister, praised the bank’s “bold” efforts to hold down the yen, lending credence to suspicions that the real motive is to counter “beggar-thy-neighbour” currency devaluations by other powers and prevent the strong yen choking Japan’s export industry.

Yunosuke Ikeda, from Nomura, said the Bank of Japan had yielded to “immense political pressure” after months of criticism. Governor Masaaki Shirakawa is a champion of orthodoxy, a soulmate of Germany’s Jens Weidmann.

Mr Shirakawa stated on Wednesday – almost with regret – that Japannow has the “easiest monetary conditions” in the rich world. “I do not think that you could argue that the BoJ is less bold than the Fed,” he said.

David Rea, from Capital Economics, said attempts to weaken the yen are doomed to failure as Japan’s safe-haven role makes it a magnet for funds fleeing the unresolved crises in the rest of the world. He expects the yen to strengthen from 78 yen to the dollar to 70 yen by late next year. It was at 125 yen five years ago. China’s yuan is pegged to the dollar so Japan has suffered a dramatic loss of competitiveness against China.


Japan’s economy clearly contracted in the third quarter as the post-Fukushima rebound stalled and trade slumped across Asia. Japan’s exports fell 8pc in July. The trade deficit reached a one-month record of $6.6bn (£4.1bn).

The fresh stimulus extends the bond-buying plan through 2013 and prevents a cut-off as Japan grapples with a budget crisis and its own version of the US fiscal cliff. Fitch Ratings said parliament’s failure to raise the legal debt ceiling had halted bond issuance and created the risk of sudden spending cuts, possibly worth 8pc of GDP. “This would probably be extremely disruptive,” it said.

Mr Shirakawa denied that the latest move is part of a concerted easing with global authorities. “I do not think any central bank would act simply because another central bank acted,” he said.

Japan blazed the trail for modern QE in 2001 and has been on monetary life-support for a decade, yet the country is still stuck in perma-slump. Critics say Japan’s actions were too half-hearted to turn the tide. “They didn’t do enough,” said Simon Ward, from Henderson Global Investors.

Japan flooded the reserves of the commercial banks in its early rounds of QE, rather than buying assets. This changed in 2010, but the BoJ predominantly bought bonds from banks. Monetarists say this does little to boost the broad money supply. If so, the stimulus is unlikely to gain traction.

The Telegraph