IMF Backs Japan’s $1.4tn Monetary Policy Boost

International Monetary Fund managing director Christine Lagarde on Sunday said the radical $1.4 trillion stimulus from the Bank of Japan would not only boost investor confidence in the world’s third largest economy, but would also support the world economy that she said has improved from a year ago.

The Bank of Japan stunned investors on Thursday when it announced plans to dramatically expand the country’s monetary supply, as it tries to stimulate growth and end two decades of stagnation.

International Monetary Fund managing director Christine Lagarde on Sunday said the radical $1.4 trillion stimulus from the Bank of Japan would not only boost investor confidence in the world’s third largest economy, but would also support the world economy that she said has improved from a year ago.

The Bank of Japan stunned investors on Thursday when it announced plans to dramatically expand the country’s monetary supply, as it tries to stimulate growth and end two decades of stagnation.

To do so, the central bank’s new governor, Haruhiko Kuroda, said the BoJ plans to pump $1.4 trillion into its economy in under two years via the purchase of government bonds and other assets.

[quote] Japan’s government debt, at twice the size of its $5 trillion economy, is proportionally the highest among developed nations. [/quote]

Related News: Japan Records Fourth Straight Year Of Deflation

Related News: Japan PM Admits BOJ May Fail 2% Inflation Target

Related Story: Japan’s Gamble on Growth: Joseph Stiglitz

Largard said the so-called quantitative easing is necessary to stimulate growth amid a patchy global economic recovery.

“Monetary policies, including unconventional measures, have helped prop up the advanced economies, and in turn, global growth,” she told the Bo’ao business forum in southern China on Sunday. “The reforms just announced by the Bank of Japan are another welcome step in this direction,” she said.

But Lagarde cautioned that there was a limit to what quantitative easing could achieve in propping up growth. Japan still needs to repair its balance sheet and implement “comprehensive structural measures”, the IMF chief said.

Lagarde also warned that global monetary policy easing had led to strong credit growth that had contributed to a build-up of financial imbalances and rising asset prices. To avoid these side-effects, she suggested central banks “must think about the timing and pace of withdrawing monetary support” and return to fiscal balances existing before the 2008 global financial crisis.

Related News: Japan Could Lose Developed Nation Status by 2050

Related Story: Returning The Reserves: Why Japan Must Focus On Consumption Not Investment