What if the Federal Reserve ends its asset purchase program in June, beginning the so-called normalization of monetary policy?
On Thursday, the Bank of Japan (BOJ) added 5 trillion yen to its asset purchase program, adding more liquidity to the economy.
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The Bank of England, as expected, expanded its asset purchase program in an attempt to stoke the flagging British economy.
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First, there was not at all a consensus among the FOMC members on whether to end the asset purchase program sooner rather than later.
The BOJ will add 10 trillion yen to its existing monthly asset purchase program bringing that program to a whopping 13 trillion yen per month.
This new asset purchase program is slated to begin January 2014.
The second key announcement from the BoJ meeting was that a 13 trillion yen asset purchase program, aka stimulus, would start in January of next year.
Yields on 10-year Japanese government bonds fell to 0.770%, the lowest since June 2003, after the central bank announced it would tweak its main policy tool, the asset purchase program.
Secretary HENRY PAULSON (Treasury Department): This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people, and to stimulate our economy.
Maki adds that he believes that the report, together with other recent data, will convince the Federal Reserve to refrain from launching a new asset purchase program at this month's meeting.
After pressuring Governor Masaaki Shirakawa, the Bank of Japan came through, setting a formal 2% inflation target (CPI contracted 0.2% in 2012) and unveiling a new open-ended asset purchase program (QE).
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Though the Fed is expected to hold interest rates at their historic lows, and not make any major changes to its asset purchase program, it is expected to offer more pleasant commentary on the economy.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.
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Quantitative easing (QE) was the catch phrase of the day on Tuesday as the markets digest both the Bank of Japan's new and possibly radical asset purchase program and rate reduction pair, and the prospect of further QE by the Fed.
Supported by a QE II asset purchase program still alive and kicking through the end of June, we estimate that this, our current monetary inflation cycle, will show a cumulative monetary infusion of about 37% by the time QE II is over, 77% the size of the last inflation cycle .
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The Nikkei newspaper reported that the BOJ will consider adding to its asset-purchase program, known as quantitative easing.
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Japan's Nikkei Stock Average closed down 0.4% after the central bank said it would increase its asset-purchase program.
The dollar reached a four-year high against the yen as the Bank of Japan left its asset-purchase program unchanged.
It is expected that the institution headed by Ben Bernanke will further its asset-purchase program while keeping rates between 0 and 0.25%.
The FOMC is expected to keep rates at their historic lows, as well as not make any major changes in its massive asset-purchase program.
Japan's Nikkei Stock Average shed 1% after the Bank of Japan said it would extend its asset-purchase program, disappointing some investors who were hoping for new stimulus measures.
Japan's Nikkei Stock Average slipped 0.1% for a sixth straight loss after the Bank of Japan left unchanged its key interest rate and the size of its asset-purchase program.
Lastly, news reports say that the Bank of England will continue to keep its interest rate at 0.5% and its asset-purchase program at 375 billion pounds when it meets Thursday.
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In Asia, China's Shanghai Composite slipped 0.3%, weighed down by Europe, while Japan's Nikkei Stock Average gained 0.6% after the Bank of Japan eased monetary policy by expanding its asset-purchase program.
Mr. Russell, of U.S. Bank Wealth Management, said he had thought the recovery would force the Fed to pare back its asset-purchase program as soon as the third quarter of this year.
And acknowledging that quantitative easing undertaken by the BOJ from 2001 to 2006 had a limited impact, he introduced an innovative easing measure an asset-purchase program in October 2010 amid a near-zero interest rate.
The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
The Fed offered to expand its emergency lending program to help commercial banks finance the purchase of asset-backed securities from the funds.
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