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The Bank of Japan announced a new stimulus plan last Friday. This new plan involves the annual purchasing of the equivalent of $58 billion USD worth of ETFs. This is an increase of approximately $26 billion from last year. The bank notably yields negative interest rates. However, those will not be affected in this new round of easing.
Also not included in the plan is an increase in its pledge to buy Japanese government bonds. Japan's central bank owns a significant amount of Japanese government bonds, making up a majority of its portfolio. A further increase in government bond purchases may have increased market risk.
While not unexpected with the details of the announcement, investors are generally disappointed with the plan. The stimulus is being perceived as underwhelming, which is in turn being interpreted as an indication that the Japanese central bank has reached the limits of quantitative easing and monetary policies. Japan's currency has been rising while inflation is on the decline. This fueled investors' wishes for more aggressive policy implementation.
What does this mean for other economies? This "timid" move by the Bank of Japan has warned other economies of the limits of monetary policy. Japan has been combatting its low inflation for years. In the meantime, Eurozone inflation is also below the European Central Bank's goal. As the European bank continues its stimulus to combat this, it must keep a close watch on Japan and its creative efforts.
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