Asia Economy
Bank of Japan raises money printing target; Spending and wages plunge
By Michael Hennigan, Finfacts founder and editor
Oct 31, 2014 - 4:39 AM

Haruhiko Kuroda, Bank of Japan governor, at the IMF-World Bank meetings, Oct 10, 2014

The Bank of Japan on Friday made a surprise announcement of more QE (quantitative easing) or commonly called money printing, increasing its asset purchases for the first time in more than a year and a half, as its 2% inflation target looks increasingly unlikely to be achieved. Also today it was reported that annual household spending was down 5.6% in September while wages also fell for the 12th straight month.

The central bank said it would step up its asset purchases so that the monetary base expanded at an annual pace of ¥80tn ($724bn), rather than ¥60-70tn as in the past.

The move shows that Prime Minister Shinzo Abe's economic recovery plan has been impacted by a fall in consumer spending following a raise in the sales tax last April from 5 to 8%.

The BOJ said in a policy statement that "the economy is likely to continue growing at a pace above its potential trend, while it will be affected by a front-loaded increase and subsequent decline in demand prior to and after the consumption tax hikes."

However, “if the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mind-set, which has so far been progressing steadily, might be delayed.”

In September, core CPI dipped to a 11-month low of 1% the government reported also Friday.

The 2% target is in respect of fiscal 2015 beginning on April 1 next year.

Kyodo news agency reported today that Japan's average household spending in September slipped an inflation-adjusted 5.6% from a year earlier to ¥275,226 yen for the sixth consecutive month of decline following the April consumption tax hike, the government said Friday.

The drop was bigger than August's 4.7% decline, and the result, released by the government underlined that spending by wage-earning households remains in deep freeze after the April tax hike.

The data could affect a decision later this year by Prime Minister Shinzo Abe on whether to raise the sales tax again in October 2015 as stipulated by a law to restore the country's fiscal health, the worst among major developed nations.

The data also showed the income of salaried households fell a real 6.0% to an average ¥421,809 yen for the 12th straight monthly slide.