The Bank of Japan (BOJ) on yesterday announced further monetary- easing measures in its latest bid to halt the damaging spiral of deflation that has plagued the economy for years.
The central bank said it would increase its asset purchase program by ￥5 trillion (US$62 billion) to about ￥70 trillion. It also said its policy board had voted unanimously to keep its key interest rate unchanged at between zero and 0.1 percent.
The BOJ also said it would expand its purchases of government bonds to those with longer maturities.
“The bank decided to increase the outstanding amount of the [asset purchase] program to about ￥70 trillion by around end-June 2013,” a statement said.
The bank was already committed to boosting its asset purchase war chest to ￥65 trillion by the end of this year. The latest easing move is yet another salvo in Japan’s ongoing battle with the deflation that has had a stranglehold on its economy for years.
Figures released yesterday showed prices rose just 0.2 percent on year last month, almost solely due to rocketing energy prices around the world.
While seemingly good news for individual consumers, falling prices are bad for the economy as a whole because they encourage shoppers to put off purchases in the hope they will pay even less for goods in the future.
This cuts into corporate profits and stops firms investing in capital and employees because they are unable to see future demand. Last month, the bank almost doubled a loan program to ￥5 trillion amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year’s quake-tsunami disaster and flooding in Thailand.
Mixed figures released yesterday also showed the Japanese economy struggling to achieve momentum.
Household spending climbed, but at a slower than expected rate. Unemployment remained static, but industrial production only managed a small rise, and projected figures showed the outlook for output over the coming months was much gloomier.
Factories turned out a disappointing 1 percent more goods last month from the previous month, the Japanese Ministry of Economy, Trade and Industry said.
The rise partially reversed a 1.6 percent fall in February, but was slower than a jump of 2.4 percent the market had been anticipating.
The ministry also said manufacturing companies expected a 1 percent rise in production this month would be dwarfed by the 4.1 percent shrivelling of output they were staring at the following month.
“The economy continues to be at a standstill,” Norinchukin Research Institute economist Takeshi Minami said.
Minami said the Japanese economy would likely only gather momentum once the global economy begins picking up, adding that “the worst-case scenario” of Europe’s debt crisis hurting emerging markets seemed to have been averted.
However, looming power shortages in Japan could “pour cold water” over the positive trend, he said.
“It could damage supply when exports and reconstruction demand are growing toward summer. There are risks of its putting a damper on the economy,” he said.
The BOJ repeated its view that Japan’s economy “is expected to return to a moderate recovery path” helped by recoveries overseas, especially in emerging economies, and reconstruction-related demand.
However, it said the economy will likely fail to reach the central bank’s short-term inflation target of 1 percent. The bank has set a target level for inflation, saying that it had a price stability “goal” of 2 percent in the medium to long-term and 1 percent for the time being.