Bank of Japan announces massive asset-purchase programme

£90bn of government assets purchased each month starting in January 2014.

The Bank of Japan has made its much-foreshadowed move to attempt to end the years of deflation the country has faced. This morning, it announced that it was repositioning its inflation target from 1 per cent to 2 per cent, and that it would aim to achieve that rate "at the earliest possible time".

The plan involves more than just expectations management, as well. Until the end of this year, the bank will continue with its ¥101trn round of quantitative easing, but from January 2014 it will begin buying ¥13trn — over £90bn — of assets, mostly short-term government debt, each month. The hope is that the massive burst of asset purchases will act to spike inflation, but there are indications that the government also plans to use some of the revenue this monetary policy will accord to it for fiscal stimulus.

As well as being higher than it was before, the inflation target is also stronger, replacing a "vaguely-worded “goal” for price stability over the medium to long-term", according to the Financial Times. That goal was not thought to be symmetrical, either: it merely targeted a positive rate of inflation below 2 per cent. Non-symmetric targets tend to inspire a tendency to undershoot (because if 1.9 per cent is OK but 2.1 per cent is terrible, no bank will aim for 2 per cent inflation), compounding the problems.

The news is not likely to please Germany's chief banker, Jens Weidmann, who yesterday warned of the danger of a government intervening too strongly in the actions of a central bank. Weidmann said in a speech at a Deutsche Boerse event that:

Already alarming violations can be observed, for example in Hungary or Japan, where the new government is interfering massively in the business of the central bank with pressure for a more aggressive monetary policy and threatening an end to central bank autonomy. A consequence, whether intentional or unintentional, could moreover be an increased politicisation of exchange rates.

But Weidmann is complaining into dead air, at this point. Japan's popular nationalist new prime minister, Shinzo Abe, is determined to restore the country to growth by any means possible. A recent tax bill, passed before his election, contains a (non-binding) target of 3 per cent nominal growth and 2 per cent real growth (implying a 1 per cent rate of inflation), which he is likely to adopt as a target for his own government. To achieve that, he needs some aid from the Bank of Japan — aid which he has secured. The question now is whether the bank will be allowed to return to independence when its job is done.

The Bank of Japan. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.