Fed Tapers Stimulus, Japan Brings New Stimulus

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Fed Tapers Stimulus, Japan Brings New Stimulus
Fed Tapers Stimulus, Japan Brings New Stimulus

Fed Tapers Stimulus, Japan Brings New Stimulus

Today, the Bank of Japan came up with a statement wherein it said that it is maintaining its record easing though on the other side of Pacific Ocean, the U.S. Federal Reserve has decided to taper policy. The decision on the part of Japan is aimed to weaken the yen to a five-year low against the dollar as the country’s economy depends a lot on exports and weak yen gives impetus to it.

In his statement governor Haruhiko Kuroda said that the central bank of Japan is expanding the monetary base by an annual 60 trillion to 70 trillion yen ($670 billion). The much waited conclusion came after a two-day meeting in Tokyo. According to media Kuroda’s push for 2 percent inflation underscores the difference in policy direction between the BOJ and the Fed.

The Bank of Japan Cautious about Prices

According to market observers the change in language that the BOJ is adopting shows that it is more cautious on prices. In fact, Kuroda said there was no change in his view which he has been expressing on inflation. He says that that Japan will reach the BOJ’s 2 percent inflation target and the new steps are being seen as solid steps to boost government bond purchases.

In his statement Kuroda said that the BOJ isn’t targeting foreign exchange rates which have fallen to record levels against the dollar. Factually, the yen has fallen 17 percent against the dollar this year which is not just unprecedented but also setting disturbing trends; for instance, it is fueling consumer price gains.

However, Kuroda sees it as a market correction which according to him is an excessively strong indication for Japan’s economy. He said at a press conference after the meeting that corporate profits have been boosted, sentiment among economic players has turned positive, stocks have risen and growth has accelerated.

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The Fed May Reduce Its Bond Buying by $10 Billion

Reports are coming that in its pursuit to reduce stimulus every month, the Federal Reserve will probably reduce its bond purchases in $10 billion increments. It will be done over the next seven meetings before ending the program in December 2014. In its statement the Federal Open Market Committee said that it will slow buying.

Bernanke in his statement said that the Fed is going to take further modest steps subsequently, so that would be the general range. He added that the Fed could stop purchases if the economy disappoints, it could pick them up somewhat if the economy is stronger.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com