Bank of Japan Expands QE by ¥10 Trillion

The Bank of Japan (BOJ) became the latest central bank to increase the size of its quantitative easing program at its monetary policy meeting on Tuesday.  There, the BOJ raised the size of asset purchase plan by 10 trillion yen, or approximately $130 billion, from ¥55 trillion to ¥65 trillion.  The entire amount will be earmarked for the purchase of Japanese government bonds.

In addition to the asset purchase plan expansion, the Bank of Japan set an inflation target of 1.0%.  Despite unprecedented levels of accommodative monetary policy, the nation’s economy has been mired in deflation for the better part of the past two decades.

According to a Reuters report, “Pressure has been mounting in the past weeks on the BOJ to take bolder action and set a Federal Reserve-style explicit inflation target amid criticism from politicians that the central bank was not aggressive enough in its effort to pull the country out from prolonged deflation.”

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Seiji Adachi, senior economist at Deutsche Securities in Tokyo, commented that “The Federal Reserve’s decision to adopt an inflation target is clearly affecting the BOJ’s thinking. The Fed’s move has also given ruling and opposition lawmakers reason to pressure the BOJ into adopting an inflation target and easing policy further.”

Japan’s decision marked the latest instance in a growing trend of money printing by central banks – one of the key drivers of gold prices.  Last week, the Bank of England (BOE) announced plans to increase its quantitative easing (QE) program by £50 billion.  In December, the European Central Bank (ECB) launched its longer-term refinancing operation (LTRO) to provide cheap funding to banks.  Although the LTRO does not involve asset purchases, many economists consider it to be a form of QE because it led to a €240 increase in the ECB’s balance sheet.

In Tuesday morning trading, the yen-denominated price of gold advanced 1.0% to 134,885.42 yen.  The yellow metal reached an all-time high of 146,105 yen on September 6, 2011.