Bank of Japan Governor Haruhiko Kuroda began his campaign to end15 years of falling prices by doubling monthly bond purchases in abid to reach 2 percent inflation in two years.

The BOJ will purchase 7.5 trillion yen ($78.6 billion) of bondsa month and double the monetary base in two years, the central banksaid 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 torevive the world's third-biggest economy. The BOJ set a two-yearhorizon for the price goal under a “new phase of monetary easing,”as the governor won the backing of a board mostly appointed by theprevious government.

“It's fast and furious,” said Takuji Okubo, chief economist atJapan Macro Advisors in Tokyo, and formerly of Goldman Sachs GroupInc. “The specific mention of a two-year time horizon was apositive surprise.”

The Nikkei 225 Stock Average rose 2.2 percent after fallingearlier and is up 45 percent from mid-November. The yen slid 2.5percent to 95.38 per dollar at 6:18 p.m. in Tokyo, the largestone-day decline since October 2011. Yields on 10-year Japanesebonds touched a record low of 0.425 percent.

The BOJ said it changed the target for money-market operationsfrom the overnight call rate to the monetary base — cash incirculation and the money that financial institutions have ondeposit at the central bank. It predicts the measure will grow to270 trillion yen by the end of 2014. The BOJ dropped limits on thematurities of debt it buys.

The average remaining maturity of government bonds to bepurchased by the bank will be about seven years under the new plan,compared with less than three previously. Monthly bond purchasesstood 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 fiveyears. Lawmakers can question Kuroda tomorrow during his second setof confirmation hearings in parliament.

The bank will increase holdings of exchange-traded funds andreal-estate investment trusts, by 1 trillion yen and 30 billion yenper year respectively. The BOJ scrapped the asset-purchase programset up by former Governor Masaaki Shirakawa that was previously itsmain tool for easing, and said it will buy bonds with maturities ofas much as 40 years.

Banknote Rule

Under a so-called banknote rule, the BOJ had pledged to keep thevalue of its bond holdings below the amount of cash in circulation,excluding securities held under its asset-purchase program. Thatguideline is “temporarily suspended,” the central bank said.

Only one board member, Takahide Kiuchi, voted against any ofKuroda's policy proposals.

The new policies will “lead Japan's economy to overcomedeflation that has lasted nearly 15 years,” the central bank saidin the statement.

“Today's decision clearly heralds a regime change at the BOJ,”said Hiroaki Muto, a senior economist in Tokyo at Sumitomo MitsuiAsset & Management. “Kuroda has embarked on an experiment ofwhether boosting the monetary base can prop up economic growth anderadicate deflation.”

Not everyone is confident that Kuroda's plan will work. FormerBOJ board member Atsushi Mizuno last month said more bond purchasescould inflate a market bubble, while Kazumasa Iwata, a formerdeputy governor, deemed Kuroda's two-year goal impossible. Pricesexcluding fresh food haven't risen 2 percent in any year since1997, when a sales tax was increased.

In December, Prime Minister Shinzo Abe led his party toelectoral victory by pledging to fire “three arrows” to endstagnation: monetary stimulus, fiscal spending and cuttingregulation to increase investment and hiring.

Population aging and a government debt more than twice the sizeof the economy are constraints, while the yen's decline sinceNovember is boosting the cost of fuel imports after nuclearpower-plant shutdowns. Sales-tax increases set for 2014 and 2015may damp consumption.

The central bank today said its bond purchases aren't intendedto finance government spending, and emphasized the need for “asustainable fiscal structure.”

Elsewhere in the Asia-Pacific region, a gauge of Australia'sservices industry rose in March to the highest level in 14 monthsas interest-rate cuts boosted firms linked to household spending.Building permits and retail sales gained from a month earlier inFebruary.

The European Central Bank and Bank of England will probably holdinterest rates in monetary policy decisions due today, according toeconomists in two separate Bloomberg News surveys. In the U.S.,initial jobless claims probably fell to 353,000 last week from357,000 in the previous period, according to a Bloombergsurvey.

Bloomberg News

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