Shirakawa’s last stand

The Bank of Japan, under departing Governor Shirakawa, has resisted government pressure for substantial further monetary easing. While introducing a “price stability target” of 2% inflation to replace the previous “goal” of 2% or lower “in the medium to long term”, the BoJ will stick with previous plans to add ¥36 trillion to its securities portfolio in 2013. Purchases will continue in 2014 but will fall to a net ¥10 trillion.

This decision is sensible since money supply measures are growing solidly and current purchases are already huge: ¥36 trillion equals 7.6% of projected 2013 GDP. If a monetary slowdown warrants further stimulus, this would be best achieved by lengthening the maturity of securities purchases rather than expanding the size of the programme.