In a shock move, Japan’s central bank has announced it is expanding its massive stimulus spending, buying more bonds and printing the money to do that.
It was a stark admission that economic growth and inflation have not picked up as much as expected, held back by April’s sales tax increase.
However, Bank of Japan (BOJ) Governor Haruhiko Kuroda refused to admit his 18-month-old plan to reflate the long moribund-economy has derailed and insisted this was a preemptive strike to keep policy on track.
He told reporters: “I can say that we are at the moment of truth, the critical moment, in our process of shaking free from deflation.”
The original stimulus was intended to finally end Japan’s economic stagnation after 15 years of falling prices.
But in September household spending was down for a sixth straight month from a year earlier and the world’s third-largest economy has sputtered.
Growth and inflation weak
In a semiannual report, the BOJ halved its growth forecast for the fiscal year to March to 0.5 percent. It trimmed its CPI forecast for fiscal 2014 and 2015, but still expects to meet its inflation target within the two years it originally set out.
The latest annual core consumer inflation estimate was 1.0 percent when stripping out the effect of April’s tax hike, which is half the BOJ’s target.
The prospect of more money being pushed into the economy, caused share prices to rally in Tokyo on Friday with the benchmark Nikkei stock index spiking to a seven-year high and the yen falling in value to its lowest against the dollar since 2008.
The Japanese government is set to decide in December whether to raise the sales tax next year to 10 percent from the current 8 percent.
Given the economy’s weakness, there is a growing chorus of voices cautioning delay.