Japanese pump more steroids into its economy
Chris Towner, managing director of FX advisory services at foreign currency specialists HiFX, comments on Japan’s plans to boost inflation.
Chris said: “The law of physics states that if you continue to add liquid to something, the area will expand.
“Overnight Japan surprised the market by increasing their quantitative easing programme, which involves pumping more and more cash into the economy. This was in reaction to their slowing inflation rate which dropped to 1%, half of their 2% target level. Alongside this, the unemployment rate ticked up to 3.6% and the Bank of Japan are concerned that wage inflation doesn’t stagnate.
“However, the biggest shock of this is that the Bank of Japan was already pumping 60-70 trillion yen (£330bn-£395bn) into the economy. This was already a quantitative easing programme on steroids in relation to the size of the Japanese economy, and already outweighed the QE programme in the US when it was running at full steam. Now the Bank of Japan have increased this to 80tn JPY (£450bn) and have made their inflation target an open-ended target rather than a target that needed to be reached in two years.
“The reactions in the markets have also been one of shock and awe with the Nikkei surging by almost 5% and the Japanese yen weakening by its largest margin in 1.5 years. GBP/JPY has jumped from 168 where it traded at the middle of the month to deal at 178. Further, Central Banks and monetary policy continue to gyrate the FX markets as though they are playing chicken with each other as to who can be the boldest in terms of monetary policy.”