Bank of Japan announces fresh easing measures
TOKYO: The Bank of Japan on Monday responded to government pressure to counter a strong yen by extending a multi-billion-dollar loan programme, but the currency moved higher still with markets unimpressed.
The decision came after an emergency meeting called in response to strong pressure from officials to curb the yen's rise and support an economy mired in deflation, after the unit hit a 15-year high against the dollar last week.
Fears for the health of the global economy have increased in recent weeks, and US Federal Reserve chief Ben Bernanke on Friday vowed to act if "unexpected developments" further threaten the shaky US recovery.
BoJ governor Masaaki Shirakawa returned to Tokyo on Sunday after cutting short a trip to the United States by one day for the hastily convened gathering.
In its second loan expansion since March, the bank said it would offer 10 trillion yen (118 billion dollars) in sixmonth low interest loans in addition to 20 trillion yen from December's three-month loan scheme.
Domestic financial institutions will therefore be able to borrow a total of 30 trillion yen from the central bank for maximum of six months against pooled collateral, at the rate of 0.1 percent.
The move would help lower interest rates in the market place with a view to easing the yen's strength, said the bank, which left its key rate unchanged at 0.1 percent.
With the government due to outline a new stimulus package on Tuesday, "the bank believes that the monetary easing measure, together with the government's efforts, will be effective in further ensuring Japan's economic recovery."
However, markets took a dim view of the widely expected steps, with the yen strengthening to below 85 against the dollar and the Nikkei index paring back earlier three percent gains to close up 1.76 percent.
The economic impact of the decision will be "close to zero," Macquarie Bank economist Richard Jerram told Dow Jones Newswires. "It's largely a charade."
"Investors had completely factored in the announced steps", said RuiXue Xu, rates strategist at RBS Securities Japan.
Shirakawa said that Monday's emergency meeting was held because "weak US economic indicators have continued, which led to the yen's strength and falls in share prices."
However, analysts say the BoJ, which has kept rates at 0.1 percent since the height of the financial crisis, has little room for manoeuvre.
Prime Minister Naoto Kan is expected to meet governor Shirakawa on Monday to discuss foreign exchange rates and measures to boost the economy. -PB News