That could mean a larger U.S. trade deficit with the country and a more difficult market for American exports, which will become more expensive in Japan by comparison. The yen fell 3 percent against the dollar on Thursday, continuing a six-month-old trend in which it has dropped about 25 percent as the country prepared to shake up economic policy. On Friday, the yen fell again and Japan’s Nikkei 225 Stock Average soared, closing its morning session up 3.76 percent and climbing above 13,000 for the first time in almost five years.
Rivaling what the U.S. Federal Reserve did in the wake of the Lehman Brothers collapse, Japan’s move is the latest example of how the developed world is relying on its central bankers to keep the economy afloat while politicians grapple with underlying problems, including government debt and economic competitiveness.
Institutions such as the Fed, the European Central Bank and the Bank of Japan have waded deep into unfamiliar territory to do the job, buying government bonds and other assets while their own internal balance sheets balloon. They are pushing money into the economy with historic low interest rates to try to battle the fact that households are slow to spend and companies are hesitant to invest and hire.
The risks are known but impossible to quantify: of inflation remaining tame until it roars out of control, or of asset bubbles creeping into unexpected parts of the economy as investors take advantage of cheap money worldwide to make ever-riskier bets.
Politicians, meanwhile, have made little progress on the underlying issues.
The U.S. budget debate is stalled, and Europe remains stuck in recession and confronting deep problems with government debt and the structure of its financial sector.
Japan’s ills also are complex — combining chronic issues such as demographic decline with acute problems such as the incomplete cleanup from the tsunami and earthquake in 2011 that displaced tens of thousands and damaged the Fukushima Daiichi nuclear complex.
The central bank action is meant to kick-start a broader push toward economic renewal promised by Prime Minister Shinzo Abe.
Calling the efforts of his predecessor “incremental,” new Bank of Japan governor Haruhiko Kuroda said he is prepared to pull out all the stops to boost growth and end Japan’s bout of falling wages and prices — a “deflation” that has mired households and companies in a self-fulfilling spiral of tight-fisted spending and downward expectations.
“This time, we took all necessary steps to achieve the target,” Kuroda said, according to wire service transcripts of his remarks in Tokyo. He referred to a planned program of $500 billion in asset purchases as “large beyond reason” but necessary to encourage households and investors to spend by increasing prices and pushing down bank lending rates. Rising prices tend to cause people to buy things before prices go up further.