Bank of Ja­pan holds fire, de­fies eas­ing calls

The Pak Banker - - Front Page -


The Bank of Ja­pan (BoJ) kept mone­tary pol­icy steady on Tues­day, stand­ing its ground for now in the face of calls from the coun­try’s likely next prime min­is­ter to pur­sue un­lim­ited eas­ing to re­vive an econ­omy widely seen in re­ces­sion.

The leader of the main op­po­si­tion, Shinzo Abe, has put the cen­tral bank at the cen­tre of eco­nomic de­bate ahead of a De­cem­ber 16 na­tional elec­tion that sur­veys show his party would win, sig­nalling his gov­ern­ment would put the bank un­der much greater pres­sure to ease pol­icy.

Abe has even sug­gested re­vis­ing the Bank of Ja­pan law, a step crit­ics say is aimed at clip­ping the cen­tral bank’s in­de­pen­dence and forc­ing it to print money to fi­nance pub­lic debt that is al­ready dou­ble the size of Ja­pan’s econ­omy.

At the end of a two-day meet­ing, the cen­tral bank left mone­tary pol­icy un­changed, hold­ing fire so it can size up the poli­cies of a new gov­ern­ment to be formed af­ter the De­cem­ber vote for the pow­er­ful Lower House.

It also wants more time to as­sess the im­pact of pol­icy eas­ing in Septem­ber and Oc­to­ber, which raised the size of its as­set buy­ing and lend­ing pro­gramme to 91 tril­lion yen (Dh4.1 tril­lion) – roughly equal to Ja­pan’s an­nual state spend­ing. Mar­kets barely re­acted to the an­nounce­ment as many had priced in the BoJ de­ci­sion. But some an­a­lysts see a good chance the cen­tral bank will boost stim­u­lus at its next rate re­view on De­cem­ber 19-20, just days af­ter the elec­tion.

“The pres­sure on the BoJ is so strong that I don’t think they can avoid eas­ing next month af­ter the re­sults of the elec­tion,” said Ya­suo Ya­mamoto, se­nior econ­o­mist at Mizuho Re­search In­sti­tute in Tokyo. “In­creas­ing as­set pur­chases is the most ob­vi­ous op­tion.” Mar­kets will now look to see how BoJ Gover­nor Masaaki Shi­rakawa re­sponds to the in­creased po­lit­i­cal heat and con­cerns over the cen­tral bank’s in­de­pen­dence when he holds a me­dia briefing later in the day.

Ja­pan’s econ­omy shrank 0.9 per cent in the Septem­ber quar­ter and given head­winds to growth in the cur­rent quar­ter, is widely expected to have slipped into a re­ces­sion.

The BoJ main­tained its as­sess­ment that the econ­omy is weak­en­ing some­what but warned that the per­sis­tent over­seas slow­down was weigh­ing on ex­ports, out­put and busi­ness spend­ing.

It also of­fered a slightly bleaker view on the out­look, say­ing the econ­omy will “re­main weak for the time be­ing” be­fore re­sum­ing a mod­er­ate re­cov­ery. In Oc­to­ber, it had said eco­nomic growth will re­main flat for the time be­ing.

Abe, the leader of the Lib­eral Demo­cratic Party (LDP), has called on the BOJ for bolder ac­tion, in­clud­ing “un­lim­ited eas­ing”, push­ing rates to zero or be­low zero and di­rectly un­der­writ­ing bonds is­sued to fund pub­lic works spend­ing. His com­ments have driven the yen to a near seven-month low against the dol­lar.

The BoJ is un­likely to give in to some of the ex­treme de­mands, such as un­der­writ­ing debt, but is weigh­ing op­tions be­yond its as­set-buy­ing pro­gramme, hav­ing cut pol­icy rates ef­fec­tively to zero, sources say.

The BoJ set a 1 per cent in­fla­tion tar­get in Fe­bru­ary and has eased pol­icy four times so far this year. Abe has talked of set­ting an in­fla­tion tar­get of 2 per cent or 3 per cent. De­spite the po­lit­i­cal pres­sure, the BoJ is caught in a dilemma. Bank notes in cir­cu­la­tion are ris­ing and the bal­ance of de­posits that com­mer­cial banks park with the BoJ is at a record high of 44 tril­lion yen as a re­sult of its ul­tra-loose pol­icy.

But bank lend­ing rose a mea­gre 0.9 per cent in the year to Oc­to­ber, a sign the ex­tra cash has not prompted com­pa­nies and house­holds to bor­row more for new spend­ing. Un­der the cur­rent law, the BoJ is free to set mone­tary pol­icy.

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