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Fed Shows BOJ Needs More Easing Amid Yen Rally: Chart of the Day

BOJ Governor Haruhiko Kuroda
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), attends a news conference at the central bank's headquarters in Tokyo on Jan. 22, 2014. Photographer: Akio Kon/Bloomberg

The Bank of Japan’s record policy easing is dwarfed by the Federal Reserve’s efforts, showing Governor Haruhiko Kuroda has plenty of room to expand stimulus after this year’s surge in the yen.

The CHART OF THE DAY shows the BOJ’s bond-buying program, launched in April, spurred growth in the monetary base that has now more than doubled since the 2008 financial crisis. That’s well behind the Fed’s quantitative easing, which has more than quadrupled the U.S. money supply. The lower panel has the yen strengthening more than the dollar over the period against peers as tracked by Bloomberg Correlation-Weighted Indexes.

“If the BOJ wants to achieve its inflation target, it needs to weaken the yen further,” said Toru Suehiro, a market economist in Tokyo at Mizuho Securities Co. “That will require a step up in stimulus. Compared with the U.S., the pace of growth of the monetary base isn’t that high.”

Japan’s core consumer prices rose to a five-year high of 1.3 percent in December as the yen’s 18 percent plunge against the dollar in 2013, the most among its Group of 10 peers, boosted the cost of energy imports. The currency rebounded 3.2 percent last month amid a rout in emerging markets.

BOJ Deputy Governor Kikuo Iwata said last week the central bank would “make adjustments” to policy as necessary to achieve sustainable 2 percent inflation. Every economist surveyed by Bloomberg News last month predicted an expansion of the 7 trillion yen ($68.3 billion) of monthly bond purchases. Only two of 35 respondents said the central bank will achieve its inflation goal within the two-year target period.

“The BOJ’s easing is not that strong if you compare it with the Fed’s, which was once labeled the weak-dollar policy,” said Suehiro. “At the same time, additional bond purchases would reignite concerns that the central bank is financing government spending. In that sense, there’s a limit to how much more they can do.”

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