Bank of Japan Governor Haruhiko Kuroda began his campaign to end 15 years of falling prices by doubling monthly bond purchases in a bid to reach 2 percent inflation in two years.
The BOJ will purchase 7.5 trillion yen ($78.6 billion) of bonds a month and double the monetary base in two years, the central bank said in Tokyo today. HSBC Holdings Plc. and Nomura Securities Co. said the easing is the nation’s biggest yet.
The yen fell the most since October 2011 and stocks surged, signaling Kuroda is winning investors’ confidence in a campaign to revive the world’s third-biggest economy. The BOJ set a two-year horizon for the price goal under a “new phase of monetary easing,” as the governor won the backing of a board mostly appointed by the previous government.
“It’s fast and furious,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, and formerly of Goldman Sachs Group Inc. “The specific mention of a two-year time horizon was a positive surprise.”
The Nikkei 225 Stock Average rose 2.2 percent after falling earlier and is up 45 percent from mid-November. The yen slid 2.5 percent to 95.38 per dollar at 6:18 p.m. in Tokyo, the largest one-day decline since October 2011. Yields on 10-year Japanese bonds touched a record low of 0.425 percent.
The BOJ said it changed the target for money-market operations from the overnight call rate to the monetary base -- cash in circulation and the money that financial institutions have on deposit at the central bank. It predicts the measure will grow to 270 trillion yen by the end of 2014. The BOJ dropped limits on the maturities of debt it buys.
The average remaining maturity of government bonds to be purchased by the bank will be about seven years under the new plan, compared with less than three previously. Monthly bond purchases stood at an average of about 3.4 trillion yen in the first quarter, according to data compiled by Bloomberg.
At stake is sustaining growth after three recessions in five years. Lawmakers can question Kuroda tomorrow during his second set of confirmation hearings in parliament.
The bank will increase holdings of exchange-traded funds and real-estate investment trusts, by 1 trillion yen and 30 billion yen per year respectively. The BOJ scrapped the asset-purchase program set up by former Governor Masaaki Shirakawa that was previously its main tool for easing, and said it will buy bonds with maturities of as much as 40 years.
Under a so-called banknote rule, the BOJ had pledged to keep the value of its bond holdings below the amount of cash in circulation, excluding securities held under its asset-purchase program. That guideline is “temporarily suspended,” the central bank said.
Only one board member, Takahide Kiuchi, voted against any of Kuroda’s policy proposals.
The new policies will “lead Japan’s economy to overcome deflation that has lasted nearly 15 years,” the central bank said in the statement.
“Today’s decision clearly heralds a regime change at the BOJ,” said Hiroaki Muto, a senior economist in Tokyo at Sumitomo Mitsui Asset & Management. “Kuroda has embarked on an experiment of whether boosting the monetary base can prop up economic growth and eradicate deflation.”
Not everyone is confident that Kuroda’s plan will work. Former BOJ board member Atsushi Mizuno last month said more bond purchases could inflate a market bubble, while Kazumasa Iwata, a former deputy governor, deemed Kuroda’s two-year goal impossible. Prices excluding fresh food haven’t risen 2 percent in any year since 1997, when a sales tax was increased.
In December, Prime Minister Shinzo Abe led his party to electoral victory by pledging to fire “three arrows” to end stagnation: monetary stimulus, fiscal spending and cutting regulation to increase investment and hiring.
Population aging and a government debt more than twice the size of the economy are constraints, while the yen’s decline since November is boosting the cost of fuel imports after nuclear power-plant shutdowns. Sales-tax increases set for 2014 and 2015 may damp consumption.
The central bank today said its bond purchases aren’t intended to finance government spending, and emphasized the need for “a sustainable fiscal structure.”
Elsewhere in the Asia-Pacific region, a gauge of Australia’s services industry rose in March to the highest level in 14 months as interest-rate cuts boosted firms linked to household spending. Building permits and retail sales gained from a month earlier in February.
The European Central Bank and Bank of England will probably hold interest rates in monetary policy decisions due today, according to economists in two separate Bloomberg News surveys. In the U.S., initial jobless claims probably fell to 353,000 last week from 357,000 in the previous period, according to a Bloomberg survey.