The Bank of Japan (BOJ) is ready to implement bold and flexible measures if necessary, Deputy Governor Hirohide Yamaguchi said yesterday after the bank last week announced extra stimulus measures.
“We will take flexible and bold steps if we judge our policy is insufficient to achieve our policy goal,” Yamaguchi said at an economic forum in Tokyo. The bank has no intention of using its policy to directly influence foreign exchange rates and sets policy by looking at the impact of currency moves on the economy and prices, Yamaguchi said.
Yamaguchi’s comments come after “uncertainty about the global economy” and an inflation rate that is still around zero percent prompted the bank to unexpectedly expand monetary easing last week. The yen’s appreciation and a global slowdown have threatened a recovery which has paused, according to the policy statement on Wednesday.
The yen fell to ￥79.22 per dollar on Wednesday, following the central bank’s policy announcement. The yen was trading at ￥78.05 as of yesterday afternoon in Tokyo, within 4 percent of its post war high in October.
The bank judged that its scenario for the economy and prices was delayed or weaker than expected, so it decided to ease at the last meeting, Yamaguchi said. At that meeting, the bank boosted the asset-purchase fund by ￥10 trillion (US$128 billion) and abandoned a floor rate for bond purchases.
The central bank downgraded its economic assessment last week and Governor Masaaki Shirakawa said the timing for the economy to return to a recovery path has been pushed back by about six months from the first half of this fiscal year through to the end of this month.
Japanese Prime Minister Yoshihiko Noda said on the same day the BOJ implemented a timely and appropriate measure. The prime minister this month said an extra budget will be needed to shore up economic growth.
The bank’s holding of Japanese government bonds are projected to reach ￥92 trillion at the end of this year compared with ￥66 trillion at the end of last year, Yamaguchi said. Yamaguchi said the central bank will not buy government bonds to monetize debt because such action could hurt trust in the central bank and trigger an increase in bond yields.
Exports fell 5.8 percent last month from a year earlier, the third straight decline, underlining that overseas demand for Japanese-made cars, machinery and other manufactured goods is slumping, the government’s data show.
JPMorgan Securities, Credit Suisse Group AG and BNP Paribas expect Japan’s economy to contract this quarter after growth slowed to a 0.7 percent annual pace in the previous three months.