THE Bank of Japan (BOJ) surprised global financial markets Friday by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April.

    The jolt from the BOJ, which had been expected to maintain its level of asset purchases, came as the government signaled its readiness to ramp up spending to boost the economy and as the government pension fund, the world’s largest, was set to increase purchases of domestic and foreign stocks.

    BOJ Governor Haruhiko Kuroda portrayed the decision as a preemptive strike to keep policy on track, rather than an admission that his plan to reflate the long moribund-economy had derailed.

    “We decided to expand the quantitative and qualitative easing to ensure the early achievement of our price target,” he told a news conference, reaffirming the BOJ’s goal of pushing consumer price inflation to 2 percent next year.

    “We are in a critical moment in the effort to break free from the deflationary mindset.”

    Kuroda said the BOJ’s easing was unrelated to portfolio allocations by the Government Pension Investment Fund (GPIF), but the effect of the day’s two major decisions means that the central bank steps up its buying of Japanese government bonds, offsetting the giant pension fund’s increased sales of them.

    The BOJ’s decision stands in marked contrast with the Federal Reserve, which on Wednesday ended its own “quantitative easing,” judging that the U.S. economy had recovered enough to dispense with the emergency flood of cash into its financial system.

    In a rare split decision, the BOJ’s board voted 5-4 to accelerate purchases of Japanese government bonds so that its holdings increase at an annual pace of 80 trillion yen (US$723.4 billion), up by 30 trillion yen.

    The central bank also said it would triple its purchases of exchange-traded funds (ETFs) and real estate investment trusts (REITs) and buy longer-dated debt, sending Tokyo shares soaring and prompting a sharp sell-off in the yen.

    “Japan’s economy continues to recover moderately as a trend and it’s expected to keep growing above its potential,” the central bank said. “But weak domestic demand after the sales tax hike and sharp falls in oil prices are weighing on prices.”

    Before Friday’s shock decision, Kuroda had been relentlessly optimistic that the unprecedented monetary stimulus he unleashed 18 months ago would succeed in bolstering an economic recovery and ending 15 years of falling prices.

    But the world’s third-largest economy has sputtered despite the BOJ’s asset purchases and earlier government spending.

    (SD-Agencies)