Bank of Japan eases policy, gobernment sees no growth
Ritsuko Ando, Reuters, Tokyo
The Bank of Japan stepped up its monetary policy easing on Wednesday, vowing to increase the already huge amount of funds it pumps into the banking system to prevent the economy from spiraling further into recession.
The decision was immediately followed by a government announcement that its official forecast for the next fiscal year starting on April 1 was for zero growth -- dim, but still far more optimistic than projections by private-sector economists who expect a second straight year of economic contraction.
"Anticipation of further easing had been building up in the market over the past two days. I think the Bank of Japan had come under such pressure that they felt they had to do something," said Chotaro Morita, senior economist at Deutsche Securities in Tokyo.
"I think this decision has left the impression that there might be further action if conditions worsen even further between January and March next year."
The BOJ said its nine-member Policy Board decided to raise the target for its so-called "quantitative easing" policy and to increase purchases of Japanese government bonds (JGBs) to 800 billion yen (US$6.25 billion) a month from 600 billion as a means to achieve that fund-injection objective.
The target -- the balance of banks' current account deposits parked at the BOJ -- was raised to 10-15 trillion yen from "above 6 trillion yen".
Rounding off its largely conventional set of new measures, the BOJ also said it would expand the use of other financial instruments, such as commercial paper and housing loan assets, as collateral in its money market operations.
"The measures we have taken today are aimed at securing stability in financial markets and helping an economic recovery from the monetary policy side, bearing in mind these (economic conditions)," the BOJ said in a statement.
The government, for its part, is compiling a second extra budget worth about 2.5 trillion yen -- in addition to a three trillion yen package enacted last month -- to help the economy.
In Wednesday's economic forecast, the government said the second package alone would boost GDP by 0.7 percent on a real basis, allowing the economy to barely avoid a full-year contraction.
Still, with prices on a persistent downtrend, the official forecast was for a contraction of 0.9 percent on a nominal basis.
Financial markets had given a 50-50 chance that the BOJ would ease policy after standing pat for four consecutive meetings.
The central bank had last eased on Sept.18, in the immediate aftermath of the Sept.11 attacks in the United States.
The yen hovered within sight of Tuesday's three-year lows around 128.50 to the dollar and two-year troughs around 116 to the euro
The Tokyo stock market's Nikkei average erased its earlier losses to close 0.38 percent higher on the day at 10,471.93.
With interest rates near zero and the central bank already flooding the money market with liquidity, options had been limited.
But the government had been piling pressure on the central bank to lend more support to the economy, which had been confirmed to be in recession by recent data showing gross domestic product had shrunk for two consecutive quarters.