The Bank of Japan (BOJ) expanded a bank-loan program, stepping up its monetary stimulus for the first time since March after the economy’s recovery weakened and the government pressured the central bank to act.
The BOJ will boost the amount of funds in the facility by ¥10 trillion (US$116 billion) to a total of ¥30 trillion, the bank said in a statement after an emergency meeting in Tokyo. Bank of Japan Governor Masaaki Shirakawa led the gathering after cutting short a US trip in the wake of increasing calls from politicians for the bank to help stem a surge in the yen to a 15-year high.
Stocks pared gains as the size of the step disappointed some analysts, and the yen recouped losses that were sparked by news of the meeting. The limited measure turns attention to government plans to bolster growth, with economic ministers gathering later today to discuss a fiscal stimulus plan.
PHOTO: EPA
“Monetary policy alone can’t change the current situation in Japan,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
“The government should play a central role to relay the liquidity to the real economy” by having more fiscal spending, he said.
Yesterday’s decision reflects rising concern about growth in advanced economies, and follows a signal from US Federal Reserve Chairman Ben Bernanke that the US is open to further measures if needed to avert another recession.
The bank-loan program that the BOJ is expanding was set up in early December last year in response to a November climb in the yen to the highest level since 1995. That mark was breached this month, when it hit ¥83.60 per dollar.
Japan’s currency was at ¥85.43 as of 1:50pm in Tokyo, after dropping to as low as ¥85.91. Moves yesterday may be exaggerated by a UK holiday that’s closed the world’s biggest market for foreign-exchange trading. The Nikkei 225 Stock Average was up 1.6 percent after rising as much as 3.2 percent.
“Stocks will certainly give up some of the gains,” said Winston Barnes, the head of sales and trading for Asian markets at WJB Capital Group Inc. in San Francisco.
The BOJ “did what was expected,” rather than provide investors with a surprise degree of monetary expansion, he said.
The extra ¥10 trillion unveiled yesterday will be offered in six-month credit, with the term for the other ¥20 trillion remaining at three months.
Board member Miyako Suda dissented with her eight colleagues in yesterday’s vote, the bank said.
“Uncertainty about the future, especially for the US economy, has heightened more than before, and foreign exchange and stock markets have recently been unstable,” the BOJ said. “In these circumstances, the bank judged it is necessary to pay more attention to the downside risks to the outlook for Japan’s economic activity and prices.”
BOJ policy makers doubled the size of the bank-loan fund to ¥20 trillion in March. That decision also followed political pressure, with then Japanese finance minister Naoto Kan urging the central bank to adopt an inflation target to help end declines in consumer prices.
Kan, who is now prime minister and battling to keep the post following a challenge to the leadership of the ruling party, last week said “we are ready when necessary to take bold measures” in the currency market. Speaking to reporters on Friday after meeting with business executives, he said he expected the bank to take action “swiftly.”
In addition to the central bank’s move, Kan’s aides are compiling a stimulus package to buttress growth as consumer prices keep falling and prospects for export growth are hampered by slowing expansions in overseas economies. Kan was scheduled to meet Shirakawa yesterday and then decide on the outline of his government’s economic stimulus plan, Chief Cabinet Secretary Yoshito Sengoku said at a regular press conference in Tokyo.
The central bank kept its benchmark overnight lending rate at 0.1 percent yesterday, and refrained from changing its monthly total of ¥1.8 trillion of government-bond purchases.
Also absent from yesterday’s statement was any specific reference to intervention in the currency market to stem gains in the yen.
Japan hasn’t mounted foreign-exchange intervention since March 2004, when the yen was around ¥109 per dollar. The BOJ, acting on behest of the Ministry of Finance, sold ¥14.8 trillion in the first three months of 2004, after record sales of ¥20.4 trillion in 2003.
Japanese Finance Minister Yoshihiko Noda said on Saturday that Japan would take “bold” action if necessary to curb the yen’s surge.
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