- Masayuki Doshida, senior market analyst at Rakuten Securities
The Bank of Japan unexpectedly decided to expand what was already unprecedentedly massive monetary stimulus as economic growth and inflation have not accelerated as anticipated after the sales tax hike in April. The central bank said that it would enlarge the monetary base to 80 trillion yen, up from the current 60-70 trillion yen it has targeted since last April. The new round of open-ended qualitative and quantitative easing was approved by a 5-4 vote. The decision boosted stocks, with the Nikkei 225 Stock Average soaring to the highest level since 2007, and sent the Japanese Yen tumbling, with USD/JPY rising to seven-year high at 110.67. The announcement came as recent data showed consumer inflation falling further in September, raising doubts over the BOJ's ability to reach its 2% inflation goal.
Adjusted for the sales tax hike in April, core consumer prices climbed 1% on year, compared with the 1.1% rise in August and well below the 2% target the Bank of Japan plans to achieve by April 2015. A separate data showed that household spending dropped 5.6% in September from a year earlier, while the unemployment rate inched higher to 3.6% from 3.5%. Prime Minister Shinzo Abe is pondering whether to proceed with a second stage for lifting the sales tax. The levy went to 8% from 5% this year, dragging the Japanese economy into the severest contraction in more than five years. A further hike is scheduled for October 2015, to 10%.
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