Japan ‘More Than Hollowing Out’ with First Trade Gap Since 1980; BOJ Announces $130 Billion QE, One Percent Inflation Target

From Bloomberg:

Japan’s first annual trade gap since 1980, driven by an energy-import surge as nuclear plants shut down and by a shift of manufacturing overseas, threatens to undermine the nation’s status as the world’s largest creditor.

A third straight monthly merchandise trade deficit in December capped an annual shortfall of 2.49 trillion yen ($32 billion), the finance ministry said in Tokyo today. The data reflect the impact of the record earthquake in March, which sparked a nuclear crisis that shut most reactors, as well as longer-term shifts such as Nissan Motor Co.’s decision to move some production to lower-cost Thailand.

“This is more than hollowing out -- the government hasn’t found any solutions to electricity and at this point I don’t see that we’re going to have nuclear power back again,” said Masaaki Kanno, chief economist in Tokyo at JPMorgan Securities Japan Co. The deficit will “expand in coming years,” he said.

http://www.bloomberg.com/news/2012-01-25/japan-has-first-trade-deficit-since-1980-on-quake-disruption-global-slump.html

From Reuters:

In a move that surprised markets, the central bank added 10 trillion yen ($130 billion) to its asset buying and lending scheme, under which it buys government and private debt and lends cheap funds against various types of collateral. The entire increase amount will be for purchases of long-term government bonds, the BOJ said.

The BOJ also said it will set consumer inflation of 1 percent as its price goal for the time being, making a clearer commitment to end deflation than before when it defined the level as its "understanding" on long-term price stability.

BOJ Governor Masaaki Shirakawa was grilled in parliament last week by lawmakers threatening to revise the BOJ law to give the government more scope to intervene in monetary policy, while the economics minister urged the bank to explore ways to make its price commitment easier to understand.

The central bank has pledged to keep ultra-low interest rates until an end to deflation is in sight, and defined desirable long-term price growth as consumer inflation of 2 percent or lower with the median for the nine-member board at 1 percent.

It had described this as the board's "understanding" of desirable inflation rather than an explicit price target, for fear of having its hands tied on policy. But this has drawn criticism as too vague compared with the Fed's 2 percent inflation target announced last month

http://www.reuters.com/article/2012/02/14/us-japan-economy-boj-idUSTRE81D07L20120214