The Japanese economy is currently facing difficulties due to tighter fiscal policies. The country is also facing a period of restructuring aimed at restoring economic activity and fighting deflation in order to make the rate of inflation grow by 2% per year.
During the latest meeting held on October 31st, the Bank of Japan decided to expand its current asset purchase plan, including bonds and other assets. The plan was expended from 60-70 trillion yens up to 80 trillion yens for an uncertain period.
With that said, the Bank of Japan increased the annual purchases from 12-14% up to 16% of the Japanese GDP. At this point, the central bank’s balance sheet has now reached some 57% of the annual GDP. It should be noted that such a huge ratio between the banks’ balance and the country’s GPD is 3 times as big as the one of ECB (21%).
Some economists assume that central banks’ balance sheets have a lot to do with the efficiency of their money-and-credit policies while the interest rates are close to zero. Indeed, the Bank of Japan has had a massive balance sheet for years. Still, it has failed to fight deflation efficiently so far.
Apparently, the Bank of England and the Fed have been more successful in terms of stimulating their economies and inflation while, their assets-to-GDP ratio is lower than the one of the BOJ.
According to the experts working for the Options Trading Department of Masterforex-V Academy, indefinite (in time) QE implemented by the Bank of Japan may lead to such a huge balance sheet that it would eventually become efficient in resolving the problems like deflation. The deadline for the inflation target set by the BOJ is April 2016. Taking into account all the challenges the Japanese economy is facing on its way to recovery and growth, the expected second sales-tax hike in October 2015 may lead to extra stimuli to back the economic growth and weaken the national currency – the Japanese Yen.
