'Jury is still out' on BOJ's big easing plan
Japanese central bank's surprise action to put economy in inflationary gear could work but sustained aggressive action needed, S&P chief says
Bank of Japan governor Haruhiko Kuroda's aggressive easing plan came as pleasant surprise to the market but it is still early to say if it will succeed, according to Standard & Poor's chief global economist Paul Sheard.
But Kuroda would need to keep up his action aggressive over the next two years before he could reverse deflation that has lasted at least 15 years, Sheard said.
"Because deflation is so entrenched, to convince people the deflation will end, [the central bank] may actually need to take more radical action" such as buying much more domestic risk assets or corporate bonds to achieve reflation, the Japan specialist said.
The Bank of Japan announced last week that it would double the monetary base in two years by buying 7.5 trillion yen (HK$623 billion) of bonds a month, and extending the maturities of debt it buys, which have longer maturities than before, in a bid to meet a 2 per cent inflation target.
According to Sheard, the move will expand the central bank's balance sheet by 166 per cent, as opposed to an expansion of just 51 per cent made by the central bank since the 2008 global financial crisis.