Bank of Japan adopts 2 percent inflation target, open-ended asset purchase program

Nathan Andrada – Fourth Estate Cooperative Contributor

Tokyo, Japan (4E) – The Bank of Japan (BoJ) said on Tuesday that it is adopting a 2 per cent inflation target demanded by the new government of Prime Minister Shinzo Abe while also launching an open-ended monetary easing aimed at boosting the economy.

BoJ policymakers said that they will try to meet the 2 per cent inflation rate, up from its current target of 1 per cent, at the earliest possible time using unlimited stimulus similar to what the U.S. Federal Reserve currently implements.

The BoJ’s new policy package is in line with Prime Minister Abe’s demand to raise the inflation target, a fundamental shift in policy in an economy that has been accustomed to marginal but steady decline in prices over the past two decades. This new level will replace the smaller and more vague 1 per cent inflation target that the bank had previously adopted.

The bank also announced that it will make its asset purchase program open-ended. The program, which currently values at 101tn yen ($1.13tn) from 2012, is expected to increase by 10tn ($111bn) in 2014.

The central bank’s decision was praised by Abe who said that it is the BoJ’s responsibility to put an end to deflation. He also said that the decision is the right step toward aggressive monetary easing.

The BoJ also announced an improved growth outlook for the economy, predicting gross domestic product (GDP) to grow by 2.3 per cent in the fiscal year ended March 2014, higher than its earlier estimate of 1.6 per cent.

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