Bank of Japan doubles inflation target to 2%

The Bank of Japan has doubled its inflation target from 1 per cent to 2 per cent, aiming to pump billions of yen into the economy.

The move follows call from the newly elected Prime Minister Shinzo Abe for the central bank to do more to aid more growth. The latest numbers put the world’s third largest economy in recession while it has battled on-and-off deflation for close to 20 years.

In December last year Japan held its elections in which Abe’s Liberal Democrat Party won by an overwhelming majority. The LDP led the polls in the run up to the election, with party leader Abe campaigning heavily for fiscal stimulus and reform at the central bank to stimulate Japan’s struggling economy.

The BoJ has also announced a new open-ended asset purchasing method as part of the existing asset purchase programme.

Capital Economics chief global economist Julian Jessop says: “This will be a Fed-style policy of buying a certain amount of financial assets every month until the inflation target is achieved.

“However, on closer inspection this change is still pretty timid. For a start, this method will not actually be introduced until January 2014, when the purchases under the current APP [asset purchase programme] are due to be completed.”

The BoJ has set the inflation target higher than many analysts predicted.

Jessop says previously the bank had, in effect, aimed for a range of 0 per cent to 2 per cent with the near-term goal centred at a more realistic 1 per cent.

He adds: “Committing to achieve 2 per cent inflation anytime soon is ambitious (perhaps too much so for the two policy board members who voted against the change). But the vague time horizon makes that commitment much less bold.”