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Barry Norman
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One Yen, Two Yen, Three Yen.. Ten Trillion Yen
One yen, two yen, three yen and more. The Bank of Japan decided to go back into the printing business this morning and to print more yen to the tune of 10trillion yen. That makes a very big pile of yen. Can you figure out how much space you would need to hold 10trillion yen? Well that is the number that the Bank of Japan told markets today that they would add to their asset buying program.

The funny thing this morning was the JPY was trading against a weak US dollar at 84.40 a multi month high before the release, normal expectations would be to see the yen to weaken farther after the announcement but the reverse happened today, the pair drifted to 84.18 after the release. The EUR/JPY cross is trading near record high at 111.32.

Just a few days ago, Shinzo Abe and the Liberal Democratic Party, won a landslide victory, took over the lower house of Parliament winning over 2/3 of the seats, giving the newly elected Prime Minister a lot of power to push through his policies. A major campaign issue for the Abe was the Bank of Japan and additional stimulus to help the economy recover. It is rare that a central bank becomes an election issue.

Part of Abe’s promise to voters was additional stimulus tied to a higher inflation rate just over 2% compared to the banks current rate of 0-1%. This again is something rare for a politician to push their platform and politics on an independent central bank.

Prior to the banks two day meeting which ended today, Prime Minister elect Abe, visited with the Governor of the Bank of Japan, to offer direction and suggestions and most likely to pressure the bank to yield to his demands.

Markets were already expected the BoJ to add stimulus and the bank met those expectations today, but would not yield to a change in their inflation rate.

The bank said it would review the target at its next meeting in January, after Mr. Abe takes office.  “The Bank recognizes that Japan’s economy faces the critical challenge of overcoming deflation as early a possible,” it said in a statement after wrapping up a two-day policy meeting. It kept a benchmark interest rate steady at a range of zero to 0.1 percent.

But Mr. Shirakawa has repeatedly warned that Japan, which is saddled with the highest level of public debt in the industrialized world, can hardly afford such monetary largesse. The central bank should not bankroll government spending, he has said, and too reckless a pursuit of inflation will wreck the economy.

The bank is worried that if its debt burden gets to high that it might lose its safe haven status or the other side would be a necessary interest rate increase, which could also hurt the M&A business that is conducted through Japan. 

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