Bank of Ja­pan an­nounces fresh eas­ing mea­sures

The Pak Banker - - Front Page -

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

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