Japan announces "quantitative and qualitative easing"

¥135trn of government bonds will be bought by the central bank.

The Bank of Japan has announced it is to carry out "quantitative and qualitative easing" in an effort to return inflation to its target rate of 2 per cent in "about two years". In a statement, the bank's incoming governor has said:

In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases.

The scale of the easing plan is enormous. The bank currently has ¥135trn of outstanding bonds, and plans to increase that to ¥270trn. That's an easing programme of £1.878trn, compared to the Bank of England's asset purchase programme of £375bn over the last few years.

But the "qualitative" aspect of the easing is even more groundbreaking:

In addition, JGBs with all maturities including 40-year bonds will be made eligible for purchase, and the average remaining maturity of the Bank's JGB purchases will be extended from slightly less than three years at present to about seven years – equivalent to the average maturity of the amount outstanding of JGBs issued.

Increasing the money supply by such a monumental amount is a risky move. The classic equation for money, MV=PY, holds that if the (V)elocity of money – the rate at which money changes hands – stays fixed, then an increase in the (M)oney supply must lead to an increase in either the (P )rice level, or output (Y), or both. The BoJ will be hoping for the price level to increase to two per cent and stay there, and for an increase in output to pick up the rest of the money; but once started, inflation can be hard to stop.

At the moment, deflation is Japan's biggest priority, but it runs the risk of jumping from the frying pan to the fire.

Perhaps the most important part of the announcement is what the FT's Kate Mackenzie calls "Communications and other Jedi matters". It's the bit where the bank attempts to push expectations in the direction they want, without actually saying what they want, because if they say what they want, people will second-guess what they want and then what they want won't actually happen the way they want it to and – look, they just said this:

The quantitative and qualitative monetary easing, introduced by the Bank today, will underpin the Bank’s commitment, and is expected not only to work through such transmission channels like longer-term interest rates and asset prices but also to drastically change the expectations of markets and economic entities.

What does it mean? We'll find out a bit more on the 26th, when the bank meets next.

Newly appointed Bank of Japan (BOJ) Governor Haruhiko Kuroda. 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.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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