The Bank of Japan joined the Federal Reserve and the European Central Bank last week when it announced record stimulus measures to put an end to years of economic stagnation.
Japan, the world’s third largest economy, has been plagued by two decades of deflation, and has slipped in and out of recession. The central bank has long been criticized for not being aggressive enough in its battle against falling prices. Those days are over – now the BOJ is taking a full-throttle approach to driving prices.
The BOJ wants to see inflation rise to 2%. To make that happen, it plans to double its bond holdings in the next two years by $78.6 billion in bonds every month…bringing its balance sheet from 130 trillion yen to 270 trillion yen.
Echoing the promises made by the central banks of other advanced economies, the Bank of Japan plans to fight deflation ‘at any cost’. They are pulling all the stops…but with prices stuck at 1992 levels and deflation well entrenched in the Japanese economy, it remains to be seen whether doing everything will be enough.