In a seemingly epic regime change in managing macroeconomic policy, Japan’s prime minister Shinzo Abe declared openly its commitment to turning its debilitating deflation into 2% inflation.
The Bank of Japan (BOJ) boldly agreed it would pursue monetary easing by purchasing assets, emulating the US and the European Central Bank (ECB), its two leading developed economy
counterparts. But then, the BOJ already has an asset purchasing program under way.
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The markets, analysts, and even some members of the BOJ remain skeptical, saying the country still has a long way to go in beating its long battle with a deflated economy.
There seemed to be little real follow-through ability behind the statement since the announced asset purchases will not begin until 2014.
The BOJ is adept at saying it will take bold actions, then delivering nothing. The assets identified in the new bond-buying program are for assets with 30-year maturities that have very low interest rates.
New purchases of these types of assets will yield little benefit unless the BOJ also begins purchasing stocks and other higher yielding assets.
In similar rhetoric to the US and ECB, the BOJ stated it would continue buying financial assets and virtual zero-interest rate policy as long as necessary to achieve a 2% inflation rate.
Analysts say a true fundamental change in the bank’s policy is unlikely until April
when the BOJ’s governor Masaaki Shirakawa’s term expires.