Japan agrees 2% inflation target and asset purchases

The Bank of Japan (BOJ) has agreed to double its inflation target to 2% and ease monetary policy, meeting key demands of Japan’s new government.

Japan’s central bank has guarded its independence and there were fears it may resist Prime Minister Shinzo Abe’s calls for it to do more to help growth.

However, the BOJ has gone further than many analysts predicted, also offering to do open-ended asset purchases.

The BOJ measures are expected to pump billions of yen into the economy.

“This is very good news,” said Brian Redican from Macquarie in Sydney. “For once, the BOJ has been more aggressive than the market expected. The government is clearly forcing the pace of change, which is no bad thing.”

“The BOJ has talked about targeting inflation for years without any success, but these changes are more credible.”

Many investors have already been betting that the BOJ would agree to do more to stimulate economic growth.

As a result, the yen has fallen 13% against the US dollar in the last two months, and Tokyo’s main stock index the Nikkei 225 has risen.

On Tuesday, Tokyo stocks were higher again on optimism that the yen would weaken further, helping boost exporters’ earnings.