* BOJ changes policy target to base money from interest
* Combines bond-buying schemes, targets JGBs across curve
* BOJ to double JGB, ETF holdings in 2 years
* Fed policymakers offer cautious support
* Kuroda get unanimous support from BOJ board
* Kuroda says took all steps BOJ could think of
By Leika Kihara and Stanley White
TOKYO, April 4 The Bank of Japan unleashed the
world's most intense burst of monetary stimulus on Thursday,
promising to inject about $1.4 trillion into the economy in less
than two years, a radical gamble that sent the yen reeling and
bond yields to record lows.
New Governor Haruhiko Kuroda committed the BOJ to open-ended
asset buying and said the monetary base would nearly double to
270 trillion yen ($2.9 trillion) by the end of 2014, a dose of
shock therapy officials hope will end two decades of stagnation.
The U.S. Federal Reserve may buy more debt under its own
quantitative easing program, but since Japan's economy is about
one-third the size that of the United States, the scope of
Kuroda's "Quantitative and Qualitative Monetary Easing" is
"This is an unprecedented degree of monetary easing," a
smiling Kuroda told a news conference after his first policy
meeting at the helm of the central bank.
"We took all available steps we can think of. I'm confident
that all necessary measures to achieve 2 percent inflation in
two years were taken today," he said.
One of those steps was to abandon interest rates as a target
and become the only major central bank to primarily target the
monetary base -- the amount of cash it pumps out to the economy.
It adopted a similar policy in 2001-2006, but not on this scale.
Kuroda's first policy meeting since taking office on March
20 was seen as a big test of his ability to steer the BOJ
towards unorthodox measures to meet the inflation target it
adopted in January, and markets liked what they saw.
The Nikkei stock index jumped 2.2 percent, closing
just shy of a last month's 4-1/2 year closing high, while on
Wall Street, shares of Toyota Motor rose 4.5 percent.
The yen fell more than 3 percent against both the dollar
and euro and the 10-year government bond yield
fell to a record low.
A weaker yen aids Japanese companies by making their
products less expensive to overseas buyers and should help
create price inflation.
Top policymakers at the Fed gave cautious endorsements of
the Bank of Japan's move, saying it could help economies around
"Having Japan over the last many years going in and out of
deflationary periods and being poised on the knife's edge of
deflation and reflation, versus growth, is not a healthy element
of the global scene," Atlanta Fed President Dennis Lockhart said
on the sidelines of a student investment forum in Ohio.
"How it will work or how effective it will be, it's too
early to say," he added.
Charles Evans, president of the Chicago Fed, called the
move "pretty aggressive," adding: "I certainly hope that every
foreign central bank around the world is able to adopt policies
that ultimately lead to the most vibrant economies that those
economies can have because we need it around the world."
The Fed and Bank of England have also embraced large-scale
bond purchases in an effort to boost growth, while the European
Central Bank said Thursday it would keep policy loose for as
long as necessary to revive the struggling euro zone economy.
Still, the scope of Kuroda's overhaul offered major risks.
It could leave the central bank heavily exposed to
government debt and potentially huge losses if it failed to
stoke inflation and investors lost faith in its efforts to
revive the economy. It could trigger a currency war as other
Asian exporters seek to remain competitive with a weaker yen.
"It is as if we've gone back to the quantitative easing of
the 2000s," said Hiroaki Muto, senior economist at Sumitomo
Mitsui Asset Management in Tokyo.
"Targeting the monetary base will lead to a huge increase in
current account balances that commercial banks keep at the BOJ,
but I'm still not sure if this money will move through the
Bill Gross, founder and chief investment officer at giant
bond fund PIMCO, noted on his Twitter account that the size of
Japan's stimulus relative to the country's total output would be
twice as big as the Fed's asset purchase plan.
"It may not work but they will go down swinging," Gross
wrote. "Sell yen."
Currency analysts said they expected the dollar, last at
96.19 yen, could hit 100 in the months ahead, a level it last
reached four years ago.
Monetary base, or cash and reserves at the BOJ, already hit
a record in March, but the huge pile of money has failed to end
deflation or boost wages.
The BOJ will buy 7.5 trillion yen of long-term government
bonds per month, roughly 70 percent of bonds sold in markets. It
combined two bond-buying schemes, its asset-buying and lending
programme and the "rinban" market operation, to buy longer-dated
government bonds, including those with duration of 40 years.
The central bank will also increase purchases of
exchange-traded funds (ETF) by 1 trillion yen per year and
real-estate trust funds (REIT) by 30 billion yen per year.
"I can say that the BOJ came up with a perfect answer in
response to market expectations," said Junko Nishioka, chief
Japan economist at RBS Securities.
"Kuroda made good on his promise of boosting monetary easing
in terms of both volume and types of assets that the bank
Kuroda said the BOJ wanted to push down bond yields enough
so that investors will start buying riskier assets, such as
property and stocks, and to prompt households and companies to
spend now rather than later on expectations of rising prices.
The central bank temporarily scrapped a self-imposed rule of
capping its holdings of government bonds to the value of bank
notes in circulation, despite reservations by some board members
that doing so could nudge it closer to monetising public debt --
or directly underwriting government borrowing.
Kuroda brushed aside concerns that excess money printing by
the BOJ will sow the seeds of a future asset price bubble, which
was repeatedly mentioned by his predecessor.
"I don't see a risk of a sudden spike in long-term interest
rates or a creation of an asset price bubble," Kuroda said.