Japan’s central bank yesterday kept its key rate unchanged at a rock-bottom zero to 0.1 percent in a widely anticipated move, but refrained from announcing extra monetary easing measures.
However, the Bank of Japan (BOJ) offered details of plans to buy assets such as government bonds and exchange-traded funds under a previously announced program to inject liquidity into the sluggish economy.
The bank’s decision came after the US Federal Reserve announced on Wednesday it would pour an additional US$600 billion into the economy through Treasury debt purchases, to try to keep a fragile recovery moving.
PHOTO: AFP
The BOJ in a downbeat report on the world’s No. 3 economy said, “Japan’s economy still shows signs of moderate recovery, but the -recovery seems to be pausing. Exports and production have recently been more or less flat.”
“Business fixed investment is showing signs of picking up. The employment and income situation has remained severe, but the degree of severity has eased somewhat,” the bank added in its statement after a two-day board meeting.
On deflation, which has long hobbled Japan’s economy, the bank said that prices are still falling “due to the substantial slack in the economy as a whole,” but also said that the price drops had continued to slow.
The central bank said it had decided the terms and conditions of its purchases of assets such as exchange-traded funds and real estate investment trusts, to inject money into the stuttering economy.
The purchases are part of a ¥5 trillion (US$62 billion) asset-buying program announced last month and part of a wider program of monetary easing worth ¥35 trillion.
The bank said it would buy assets “starting with government bonds at the beginning of next week and followed by the purchases of other assets, so that the effects of comprehensive monetary easing will quickly spread.”
The BOJ had moved forward the two-day board meeting from the middle of this month, to be in a position to react quickly to the impact of the Fed action on Wednesday.
The US liquidity injection, designed to boost growth and jobs, could also dilute the value of the US dollar, which has been trading at 15-year lows against the yen, hurting Japanese exporters whose goods become less competitive.
Japan’s Finance Minister Yoshihiko Noda said yesterday it was vital to keep a “very close eye” on US monetary easing, signaling his concern about the impact it may have on the Japanese economy or the yen’s exchange rate.
“I believe that it is necessary for us to watch developments regarding the United States’ economic conditions and monetary policy closely,” Noda said. “We will continue to monitor the foreign exchange market with great interest and will take decisive steps when necessary.”
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