The Bank of Japan shocked global financial markets on Friday by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April.
BOJ Governor Haruhiko Kuroda portrayed the board's tightly-split decision to buy more assets as a preemptive strike to keep policy on track, rather than an admission that his plan to reflate the long moribund-economy had derailed.
But some economists wondered if pushing even more money into the financial system would be effective as long as consumer confidence continues to worsen and demand remains weak.
The jolt from the BOJ, which had been expected to maintain its level of asset purchases, came as the government signaled its readiness to ramp up spending to boost the economy and as the government pension fund, the world's largest, was set to increase purchases of domestic and foreign stocks.
"We decided to expand the quantitative and qualitative easing to ensure the early achievement of our price target," Kuroda told a news conference, reaffirming the BOJ's goal of pushing consumer price inflation to 2% next year.
Kuroda said the BOJ's easing was unrelated to major portfolio changes by the Government Pension Investment Fund (GPIF) also announced on Friday, but the effect of the day's two major decisions means that the central bank will step up its buying of Japanese government bonds, offsetting the giant pension fund's increased sales of them.
The BOJ's move stands in marked contrast with the Federal Reserve, which on Wednesday ended its own "quantitative easing," judging that the U.S. economy had recovered enough to dispense with the emergency flood of cash into its financial system.
In a rare split decision, the BOJ's board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen ($723.4 billion U.S.), up by 30 trillion yen.
The central bank also said it would triple its purchases of exchange-traded funds (ETFs) and real-estate investment trusts (REITs) and buy longer-dated debt, sending Tokyo shares soaring and prompting a sharp selloff in the yen.
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