On Thursday, the Bank of Japan promised to inject about $1.4 trillion into the economy in less than two years, a move that is supposed to boost growth. Bank Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the bank’s monetary base would almost double by the end of 2014.
"This is an unprecedented degree of monetary easing," Kuroda said after his first policy meeting as the head of the bank. "We took all available steps we can think of. I'm confident that all necessary measures to achieve 2 percent inflation in two years were taken today.”
The first of those steps was to ignore interest rates as a target and instead focus on targeting the monetary base - the amount of cash the bank pumps out into the economy. BOJ tried a similar strategy in 2001-2006, but not nearly on this large a scale, reports Yahoo Finance.
The move had some effects on financial markets. The Nikkei stock index jumped 2.2 percent, while on Wall Street, shares of Toyota Motor rose 4.6 percent. "The result is nothing short of regime change," HSBC's Japan economist Izumi Devalier said in a report. "The BOJ has now made a much firmer commitment to achieving its two percent inflation goal, and has demonstrated that it will do anything short of foreign-bond buying to achieve this goal."
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Stephen Jen, managing partner at SLJ Macro Partners in London, acknowledged the effect of the bold move. "Investors were justified in feeling shocked and awed," he said.
Still, other view BOJ’s new policy as somewhat of a gamble. "It may not work but they will go down swinging," said Bill Gross, founder and chief investment officer at giant bond fund PIMCO, via his Twitter account.
Former senior Fed economist Stephen Oliner had this to say: "I do think the Fed views the move in a favorable light." He added that Fed Chairman Ben Bernanke "wants the major central banks to support the global recovery.”