The Bank of Japan yesterday abandoned the super-easy monetary policy it has kept for five years, saying it will gradually raise interest rates and start to cut the excess cash in the banking system amid signs of economic recovery.
But the central bank sent a clear message that the transition will be slow, saying benchmark interest rates will remain near zero for some time and that it will only gradually reduce the amount of liquidity in the banking system.
Economists praised the move as shrewd and balanced, saying the Bank of Japan was careful to take timely action without alarming global markets that had grown jittery in recent weeks about a possible end to the policy, which made it easy to borrow money in Japan practically interest-free.
"The bank did a splendid job," said Yasuhide Yajima, senior economist at NLI Research Institute in Tokyo. "The market had expected an end to the policy, but the bank still left interest rate rises open to interpretation."
The initial reaction from Japan's stock market was positive, with the Nikkei 225 index jumping 2.6 percent, relieving weeks of uncertainty and boosting confidence in the central bank's determination to move despite considerable political pressure to hold off.
The Bank of Japan had no easy task in timing and charting an exit from its super-easy policy.
The policy it had maintained for five years, known as quantitative easing, was unprecedented. The US Federal Reserve and the world's other central banks rely on interest rates to keep an economy in balance, including price fluctuations and growth.
But with the Japanese economy stuck in a decade-long slump and interest rates already at zero, the central bank flooded the banking system with money to spur borrowing and lending.
That policy finally seemed to be paying off with corporate profits growing, consumer spending rising and the overall economy growing at a 5.5 percent pace in the fourth quarter.
Still, Prime Minister Junichiro Koizumi and other politicians had urged the bank to proceed with caution, noting that the bank will be at fault if it's found later to have acted too hastily.
The bank also had to watch for indicators for deflation, a situation that is unusual for industrialized nations like Japan, the world's second-largest economy. Deflation saps an economy of its strength by eroding company profits, wages and growth.
The bank had said it wouldn't alter its policy until consumer prices, which have been falling for about seven years, started to rise again.
Recent data for January showed that a key index for consumer prices rose for the third straight month and marked its strongest increase since 1998.
Glenn Maguire, chief economist at Societe Generale in Hong Kong, said he expects the bank to hold off until December to start raising interest rates, but said the bank's decision had been more aggressive and bold than most economists had expected.
"It's unambiguously good news for Japan. It signals the dark days of deflation are behind us," Maguire said.
The one surprise that came in the bank's announcement was that board members in effect set a target for price increases, defining a flux of between zero and 2 percent in the consumer price index as desirable.
Some experts had opposed setting such numbers as robbing the central bank of its flexibility. Others had said that special factors such as surging oil prices could commit the bank to a price target that could backfire.
But analysts said the bank had kept the range wide enough, and the surprise factor was positive. Some had expected the bank to merely issue a vaguely-worded statement.
TYPHOON: The storm’s path indicates a high possibility of Krathon making landfall in Pingtung County, depending on when the storm turns north, the CWA said Typhoon Krathon is strengthening and is more likely to make landfall in Taiwan, the Central Weather Administration (CWA) said in a forecast released yesterday afternoon. As of 2pm yesterday, the CWA’s updated sea warning for Krathon showed that the storm was about 430km southeast of Oluanpi (鵝鑾鼻), Taiwan’s southernmost point. It was moving in west-northwest at 9kph, with maximum sustained winds of 119kph and gusts of up to 155kph, CWA data showed. Krathon is expected to move further west before turning north tomorrow, CWA forecaster Wu Wan-hua (伍婉華) said. The CWA’s latest forecast and other countries’ projections of the storm’s path indicate a higher
SLOW-MOVING STORM: The typhoon has started moving north, but at a very slow pace, adding uncertainty to the extent of its impact on the nation Work and classes have been canceled across the nation today because of Typhoon Krathon, with residents in the south advised to brace for winds that could reach force 17 on the Beaufort scale as the Central Weather Administration (CWA) forecast that the storm would make landfall there. Force 17 wind with speeds of 56.1 to 61.2 meters per second, the highest number on the Beaufort scale, rarely occur and could cause serious damage. Krathon could be the second typhoon to land in southwestern Taiwan, following typhoon Elsie in 1996, CWA records showed. As of 8pm yesterday, the typhoon’s center was 180km
TYPHOON DAY: Taitung, Pingtung, Tainan, Chiayi, Hualien and Kaohsiung canceled work and classes today. The storm is to start moving north this afternoon The outer rim of Typhoon Krathon made landfall in Taitung County and the Hengchun Peninsula (恆春半島) at about noon yesterday, the Central Weather Administration (CWA) said, adding that the eye of the storm was expected to hit land tomorrow. The CWA at 2:30pm yesterday issued a land alert for Krathon after issuing a sea alert on Sunday. It also expanded the scope of the sea alert to include waters north of Taiwan Strait, in addition to its south, from the Bashi Channel to the Pratas Islands (Dongsha Islands, 東沙群島). As of 6pm yesterday, the typhoon’s center was 160km south of
STILL DANGEROUS: The typhoon was expected to weaken, but it would still maintain its structure, with high winds and heavy rain, the weather agency said One person had died amid heavy winds and rain brought by Typhoon Krathon, while 70 were injured and two people were unaccounted for, the Central Emergency Operation Center said yesterday, while work and classes have been canceled nationwide today for the second day. The Hualien County Fire Department said that a man in his 70s had fallen to his death at about 11am on Tuesday while trimming a tree at his home in Shoufeng Township (壽豐). Meanwhile, the Yunlin County Fire Department received a report of a person falling into the sea at about 1pm on Tuesday, but had to suspend search-and-rescue
RSS