Signs that Japan’s economic recovery is faltering are fuelling expectations that the Bank of Japan’s policy board might order further monetary easing at a two-day meeting that opens on Monday.
Some analysts believe the action might include an expansion of the bank’s cheap three- and six-month credit facilities or greater purchases of government bonds. Such a move would ease pressure on the BoJ over what critics say is its failure to act forcefully enough to shore up the recovery, [which industrial and survey data has lately cast into doubt].
Pity Japan’s Democratic party. When they took power less than three months ago, party heavyweights were hoping to use the fat from a huge stimulus package drawn up by the former ruling Liberal Democratic party to help fund implementation next year of some of their generous manifesto pledges.
Japan’s cabinet on Tuesday agreed Y7,200bn ($80.6bn) in stimulus spending intended to shore up a fragile economic recovery with measures including support for employment, easier financing for smaller companies and promotion of environmental protection.
Announcement of the package, which is to be implemented in the first quarter of 2010, had been delayed since last week after a tiny but vocal coalition partner in the new Democratic party-led government demanded more generous spending. More on ft.com.
With deflation entrenched and the yen’s rise against the dollar worrying exporters, speculation swirled that the BoJ was about to announce a return to “quantitative easing” or at least an increase in its government bond-buying programme. So when all the policy board offered was a sideshow offer of cheap three-month loans to commercial banks, the sense of anti-climax was palpable.
Ryuzo Miyao, a 45-year-old professor at Kobe University, is seen as being broadly in tune with such tenets of current BoJ policy.
In the great Japanese debate on how to balance the contradictory demands of reining in the deficit and continuing stimulative spending, chalk up another political point for Shizuka Kamei, Japan’s minister for financial services.
Masaaki Shirakawa, governor of the Bank of Japan, offered a concise defence of the central bank’s calm response to the return of deflation.
The Bank of Japan is laying the ground for an end to emergency measures. But such moves are politically fraught, and the central bank is trying to reassure the public that it has no plans to raise interest rates
The BoJ balance sheet expansion moves announced in the aftermath of the Lehman Shock are correctly billed as more about financial sector stability than economic stimulus. Expectations are growing that they will be allowed to expire in December, given that fears of a credit crunch have faded.
Japanese finance minister Hirohisa Fujii deserves a little credit amid all the abuse he is taking for recent currency comments