Japan eases policy to shore up weak economy
JAPAN'S central bank eased monetary policy at an emergency meeting yesterday, seeking to contain a strong yen and mollify growing political pressure to revive a faltering economy.
The move, which disappointed investors and analysts hoping for bolder action, comes as Prime Minister Naoto Kan prepared a new set of economic stimulus measures at the meeting with Bank of Japan Governor Masaaki Shirakawa.
To boost liquidity, the central bank unveiled a new six-month low-interest loan programme to financial institutions.
Combined with an existing three-month funds-supplying operation worth 20 trillion yen (€187bn), banks will now have access to a total of 30 trillion yen.
The 8-1 decision by the central bank's policy board was accompanied by a unanimous vote to keep its key interest rate at a super low 0.1pc.
"With this, the bank will encourage a decline in market interest rates and further enhance easy monetary conditions," Mr Shirakawa told reporters.
The yen weakened and the Nikkei 225 stock average rose more than 3pc following news of the emergency meeting.
Both reversed course after the central bank's announcement.
The Nikkei pared gains to finish up 1.8pc at 9,149.26, and the yen strengthened to 85.12 to the dollar. Richard Jerram, head of Asian economics at Macquarie Securities, described the Bank of Japan's decision as a "helpless, hopeless policy".
"There seems to a sense of fatalism," Jerram said in a report yesterday. "The Bank of Japan continues to play the same old game of making incremental, but ultimately meaningless, policy change in response to political pressure."
Japan's export-driven economy faces mounting uncertainty due to the strong yen and slowing global growth.
Sustained strength in the yen is toxic to vital exporters such as Toyota and Sony because it erodes their international profits and makes their goods less competitive abroad.
Japan's economy lost its place to China as the world's second-largest, after posting annual growth of just 0.4pc in the second quarter.
The central bank maintained its broader stance on the economy, saying it is showing signs of a "moderate recovery".
But it cited mounting worries about the US economy and volatility in foreign exchange and stock markets for its latest step.
On Friday, Federal Reserve chairman Ben Bernanke said the Fed was ready to step in if the US economy showed further signs of weakening.
Japan's central bank's next scheduled board meeting begins on September 6.