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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Want to beat child poverty? End the freeze on working-age benefits

Freezing working-age benefits at a time of rising prices is both economically and morally unsound. 

We serve in politics to change lives. Yet for too long, many people and parts of Britain have felt ignored. Our response to Brexit must respond to their concerns and match their aspirations. By doing so, we can unite the country and build a fairer Britain.

Our future success as a country depends on making the most of all our talents. So we should begin with a simple goal – that child poverty must not be a feature of our country’s future.

The Institute for Fiscal Studies projects that relative child poverty will see the biggest increase in a generation in this Parliament. That is why it is so troubling that poverty has almost disappeared from the political agenda under David Cameron, and now Theresa May.

The last Labour Government’s record reminds us what can be achieved. Labour delivered the biggest improvement of any EU nation in lifting one million children out of poverty, transforming so many lives. Child poverty should scar our conscience as much as it does our children’s futures. So we have a duty to this generation to make progress once again.

In my Barnsley constituency, we have led a campaign bringing together Labour party members, community groups, and the local Labour Council to take action. My constituency party recently published its second child poverty report, which included contributions from across our community on addressing this challenge.

Ideas ranged from new requirements on developments for affordable housing, to expanding childcare, and the great example set by retired teachers lending their expertise to tutor local students. When more than 200 children in my constituency fall behind in language skills before they even start school, that local effort must be supported at the national level.

In order to build a consensus around renewed action, I will be introducing a private member’s bill in Parliament. It will set a new child poverty target, with requirements to regularly measure progress and report against the impact of policy choices.

I hope to work on a cross-party basis to share expertise and build pressure for action. In response, I hope that the Government will make this a priority in order to meet the Prime Minister’s commitment to make Britain a country that works for everyone.

The Autumn Statement in two months’ time is an opportunity to signal a new approach. Planned changes to tax and benefits over the next four years will take more than one pound in every ten pounds from the pockets of the poorest families. That is divisive and short-sighted, particularly with prices at the tills expected to rise.

Therefore the Chancellor should make a clear commitment to those who have been left behind by ending the freeze on working-age benefits. That would not only be morally right, but also sound economics.

It is estimated that one pound in every five pounds of public spending is associated with poverty. As well as redirecting public spending, poverty worsens the key economic challenges we face. It lowers productivity and limits spending power, which undermine the strong economy we need for the future.

Yet the human cost of child poverty is the greatest of all. When a Sure Start children’s centre is lost, it closes a door on opportunity. That is penny wise but pound foolish and it must end now.

The smarter approach is to recognise that a child’s earliest years are critical to their future life chances. The weight of expert opinion in favour of early intervention is overwhelming. So that must be our priority, because it is a smart investment for the future and it will change lives today.

This is the cause of our times. To end child poverty so that no-one is locked out of the opportunity for a better future. To stand in the way of a Government that seeks to pass by on the other side. Then to be in position to replace the Tories at the next election.

By doing so, we can answer that demand for change from people across our country. And we can provide security, opportunity, and hope to those who need it most.

That is how we can begin to build a fairer Britain.
 
 

Dan Jarvis is the Labour MP for Barnsley Central and a former Major in the Parachute Regiment.