The Bank of Japan embarked on a new era of huge spending Thursday by unleashing a flood of easy money, in its boldest attempt to drag the economy out of decades of crushing deflation.
Newly appointed Bank of Japan (BoJ) Governor Haruhiko Kuroda speaks during his first regular press conference at the bank's headquarters in Tokyo on April 4, 2013. The Bank of Japan embarked on a new era of huge spending Thursday by unleashing a flood of easy money, in its boldest attempt to drag the economy out of decades of crushing deflation.
The yen slumped against the dollar, the Nikkei bounced spectacularly and bond yields hit a record low after new governor Haruhiko Kuroda unveiled a doubling of the money supply and vowed no let-up in the battle against falling prices.
"We will carry out quantitative and qualitative monetary easing that is unprecedented in its scale and quality," Kuroda told a packed news conference.
The moves, which were described as a "regime change in monetary policy", signalled that the bank is abandoning self-imposed limits critics say have stymied the economy.
He added that "we are resolved to take whatever measures we can think of" to hit a two-percent inflation target in a couple of years.
"Rather than doing things incrementally, we are taking all the necessary steps to achieve two percent inflation early."
The BoJ said it would expand its asset-purchase programme to include riskier bets such as exchange-traded funds (ETFs) and real-estate investment trusts. ETFs are similar to an index fund, but are market traded like stocks.
It will also buy longer-term government bonds, a move aimed at pushing down long-term interest rates to encourage companies and individuals to borrow, instead of hoarding their cash.
The bank said it wanted to boost the monetary base -- the amount of currency in circulation including commercial bank deposits in BoJ reserves -- by 60-70 trillion yen ($630-$725 billion) annually to 270 trillion yen by the end of 2014.
Market players lapped up the moves.
The news sent the dollar surging against the Japanese currency to sit at 95.46 yen by mid afternoon, against 92.71 in the morning.
The country's stock markets also saw a severe reversal. The Nikkei closed 2.20 percent higher at 12,634.54, having been down about 2.3 percent in the morning -- representing a whopping 558 point turnaround.
Also, the yield on 10-year Japanese government bonds sank to an all-time low of 0.425 percent.
The bold moves by the Bank of Japan are just what Prime Minister Shinzo Abe ordered when he came to office pledging to get the economy back on track after decades of falling prices and anaemic growth.
Abe had tapped Kuroda, former head of the Asian Development Bank, for the bank's top job, seeing in him a kindred spirit for his public criticism of the BoJ's timid action.
The pressure on Kuroda on Thursday was to deliver after weeks of talking up his plans, with some market commentators saying that he was bound to disappoint having set the bar too high.
But Tsuyoshi Ueno, economist at NLI Research Institute, said the BoJ had shown the naysayers the door with a "huge regime change in monetary policy".
"What the BoJ announced today met almost all policy measures that had been speculated in the market," Ueno added.
Yoshikiyo Shimamine, executive chief economist at Dai-ichi Life Research Institute, hailed the moves, saying: "Kuroda showed today that the Bank of Japan is now different from what it was in the past."