How the Bank of Japan is attempting to spur growth
Abenomics returns for an encore (Part 8 of 10)
The first stimulus shot
The Bank of Japan (or BoJ) has twice taken major steps to spur growth during Shinzō Abe’s second term as prime minister. The first of these moves came on April 4, 2013, nearly four months after Abe took office. The BoJ announced the following steps:
Accept an inflation rate target of 2%, to be achieved by April 2015
Achieve a monetary base of 270 trillion yen by the end of 2014 in order to meet its inflation targets
Quantitative and qualitative easing (or QQE) by buying Japanese government bonds (or JGBs), stock market exchange-traded funds (or ETFs), and Japanese real estate investment trusts (or J-REITS) via the open market
The second helping
At the time, the BoJ policymakers believed that these QQE measures would be enough from its end to support the economy. But economic growth took a hit in the first quarter after the implementation of the hike in consumption tax earlier in the year. Also, inflation was not even close to its 2% target.
Hence, on October 31, 2014, the BoJ announced the second dose of major announcements, which came to be known as QQE2. These stimulus measures included the following:
Expanding the monetary base by 80 trillion yen, up from 60–70 trillion yen previously
Purchasing JGBs so their outstanding amount increases by ~80 trillion yen, representing an increase of ~30 trillion yen
Extending the remaining maturity of JGBs by around three years to seven to ten years.
To read more about QQE2 and its impact, please refer to our earlier post on this subject.
Both QQE1 and QQE2 worked positively for Japan-focused ETFs such as the iShares MSCI Japan ETF (EWJ) and the WisdomTree Japan Hedged Equity ETF (DXJ). ETFs with a wider focus such as the iShares MSCI EAFE ETF (EFA), Vanguard MSCI EAFE ETF (VEA), and the iShares MSCI EAFE ETF (ACWI) have significant positions in Japanese stocks.
In the next article in this series, we’ll look at why exports are so crucial to Japan’s recovery.
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