The Bank of Japan (BOJ) will probably boost currency in circulation by more than 50 percent by the end of next year, catching up with the US Federal Reserve, amid forecasts for extra stimulus.
Japan’s monetary base will increase to ￥340 trillion (US$3.29 trillion) at the end of next year, from ￥220 trillion last month, the median estimate of nine economists in a Bloomberg News survey shows.
That would close the gap with the US$3.91 trillion in the US as of last month. Reserve Bank of Australia Governor Glenn Stevens said last month the BOJ may soon outpace the Fed if it adds to so-called quantitative easing (QE).
Pressure is building on BOJ Governor Haruhiko Kuroda as the first sales-tax increase in 17 years wrecks consumer confidence in the world’s third-largest economy, while sentiment among large manufacturers trails forecasts.
In a separate survey, 44 percent of economists said policymakers, starting a two-day meeting yesterday, will add to easing in July.
“The BOJ will continue with QE and actually increase the pace of expansion of the monetary base,” Singapore-based Capital Economics Ltd economist Marcel Thieliant said. “
“Each component of its current package will be increased proportionately. The Fed may raise rates a bit more aggressively than what the market is expecting,” Thieliant added.
Monetary Base Capital Economics expects Japan’s monetary base to expand to ￥370 trillion by the end of next year, or US$3.56 trillion at current exchange rates, while that of the US will be at US$4 trillion.
The BOJ is currently conducting money-market operations so that the balance will increase at an annual pace of ￥60 trillion to ￥70 trillion yen.
The Tankan index for sentiment among large manufacturers was at 17 in the first quarter from 16 in the previous period, the BOJ report showed last Tuesday, below the median estimate of 19 in a Bloomberg survey of economists.
The index is forecast to drop to 8 in June, the lowest in a year, after the sales tax increased to 8 percent from 5 percent, also last Tuesday.
Etsuro Honda and Koichi Hamada, economic advisers to Japanese Prime Minister Shinzo Abe, said last month that the central bank could decide as soon as next month whether additional stimulus measures are necessary.
On April 4 last year, the BOJ announced plans to buy about ￥7 trillion of Japanese government debt per month to achieve a 2 percent price growth target after near-zero interest rates had failed to end 15 years of deflation.
The nation’s monetary base will grow to ￥270 trillion by the end of this year, the bank said at the time.
“Were the Bank of Japan to step up its current program of quantitative and qualitative easing, it would soon be adding more cash to the global financial system, in absolute terms, than the Federal Reserve,” Stevens said in the text of a speech in Hong Kong on March 26.
The US central bank is printing fewer banknotes, as it has cut purchases of sovereign bonds and mortgaged-backed securities to US$55 billion a month from US$85 billion last year.
The BOJ held ￥183 trillion of Japanese government debt, or 18.6 percent of the total amount outstanding at the end of December last year, central bank data show.
That compared with 12 percent at the end of 2012, before Kuroda took the helm as governor.