Japan's central bank has announced it will ease monetary policy and accept higher inflation, hoping to spur an economic upswing. New Prime Minister Shinzo Abe, who requested the move, called it "epoch-making."
The Bank of Japan (BoJ) adopted a new inflation target of 2 percent and announced plans for an indefinite asset-purchasing program on Tuesday.
The central bank said it had changed its previous 1-percent inflation goal to a more "explicit target" because it had become more aware of the importance of flexibility with regard to monetary policy.
The policy shift was announced in a rare joint statement with the government, and followed stern calls by Japan's new Prime Minister Shinzo Abe for the central bank to be more aggressive in spurring growth in the world's third-largest economy.
"In terms of a bold review of monetary policy, this statement is epoch-making," Abe told reporters in Tokyo on Tuesday.
Japan is beset by a series of economic woes, including falling exports, the strength of its national currency, tensions with China and deflation. Japan's national debt is worth more than twice the country's annual economic output, and is second only to the US in terms of sheer scope.
Since the mid 1990s deflation has persistently hurt the economy as falling prices cut into corporate profits, forcing firms to cut jobs and put off capital investments to generate growth.
Therefore, the Bank of Japan said it would expand an existing asset-buying - or "quantitative easing" program. Previously valued at 101 trillion yen (84 billion euros) for the year 2013, the central bank said it would increase the monthly limit to 13 trillion yen, and abolish the termination date. This means the bank could theoretically provide such funds for an indefinite period.
In addition, the bank voted unanimously to hold key interest rates at zero to 0.1 percent, expressing the hope this measure might spur economic growth of 2.3 percent for the next financial year through March 2014, instead of a current estimate of 1.6 percent.
However, BoJ's governing board didn't adopt its new policy unanimously as two of its nine members voted against the measures.
Their action reflects increasing global concern about government interference in central bank affairs.
On Monday, German central bank chief Jens Weidmann lashed out at the governments in Japan and Hungary for what he described as "disturbing abuses" of national central banks to force through aggressive monetary policy.
uhe/ipj (AFP, dpa, Reuters)