Friday, October 31, 2014

Bank of Japan Puts Money Printing on Steroids

Almost always, a central bank will opt for more money printing when economic data show sluggishness, unless they fear an eminent threat of creating significantly elevated price inflation. Overnight, the Bank of Japan announced steps in line with this rule.

The BOJ stunned investors by expanding its ultra-aggressive monetary easing program, saying that a combination of weak demand and a lower oil price meant that more action was needed to banish “a deflationary mindset,” though there is no indication of a "deflation mindset" (putting aside the fact that deflation is not a problem for an economy) .

The Japanese central bank said it would step up its asset purchases so that the monetary base expanded at an annual pace of Y80tn ($724bn), rather than Y60-70tn as in the past.

PMI = purchasing managers index

(Charts via Krugman)

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