BOJ widens plan for cheap loans
By Leika Kihara |
August 31, 2010, Tuesday
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Print Edition
Print Edition
THE Bank of Japan expanded its cheap loan scheme yesterday, heeding government calls for action to curb a rise in the yen that threatens a fragile economic recovery and leaving the door open to more policy easing.
The yen surged more than 1 percent against the US dollar after the central bank beefed up the supply of fixed-rate loans to banks, a move investors saw as a symbolic gesture that will do little to halt a climb in the currency that hurts exports and may prolong deflation.
"Today's move is not a bold move," said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong. "If the yen continues to appreciate, say it appreciates beyond the 80 level, that could trigger more direct intervention at some point."
The decision at an emergency meeting called a week ahead of a scheduled policy review follows weeks of efforts by Tokyo's policymakers to talk down the yen, which intensified after the yen hit a 15-year high of 83.58 yen against the US dollar last week.
Aware of slim chances of a coordinated market intervention and risks of taking on markets alone, the government stepped up its pressure on the central bank to curb the yen with some form of monetary easing. Now, however, the ball was back in the government's court, analysts said.
"They don't really have any other policy tools they are prepared to use," said Richard Jerram, chief economist at Macquarie Securities in Tokyo.
Market players were disappointed the BOJ had stopped short of more aggressive moves such as increasing Japanese government bond purchases or cutting its overnight rate call target from 0.1 percent to zero.
BOJ Governor Masaaki Shirakawa said the current level of bond buying was appropriate. He also said, however, the central bank could not rule out downgrading its forecast of a moderate economic recovery - a hint that it might act again if clearer evidence of a slowdown emerged.
The yen's rebound pulled the Nikkei average off its peaks and helped Japanese government bond futures rebound from an early plunge.
Prime Minister Naoto Kan, whose Democratic Party swept to power a year ago but was thrashed in a July upper house poll, is keen to show that he is doing something about the economy ahead of a challenge from Ichiro Ozawa in a September 14 party leadership vote that could split the party.
Kan was to meet Shirakawa after the policy board meeting, and his cabinet was to decide the basic thrust of additional measures to help the slowing economy.
The yen surged more than 1 percent against the US dollar after the central bank beefed up the supply of fixed-rate loans to banks, a move investors saw as a symbolic gesture that will do little to halt a climb in the currency that hurts exports and may prolong deflation.
"Today's move is not a bold move," said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong. "If the yen continues to appreciate, say it appreciates beyond the 80 level, that could trigger more direct intervention at some point."
The decision at an emergency meeting called a week ahead of a scheduled policy review follows weeks of efforts by Tokyo's policymakers to talk down the yen, which intensified after the yen hit a 15-year high of 83.58 yen against the US dollar last week.
Aware of slim chances of a coordinated market intervention and risks of taking on markets alone, the government stepped up its pressure on the central bank to curb the yen with some form of monetary easing. Now, however, the ball was back in the government's court, analysts said.
"They don't really have any other policy tools they are prepared to use," said Richard Jerram, chief economist at Macquarie Securities in Tokyo.
Market players were disappointed the BOJ had stopped short of more aggressive moves such as increasing Japanese government bond purchases or cutting its overnight rate call target from 0.1 percent to zero.
BOJ Governor Masaaki Shirakawa said the current level of bond buying was appropriate. He also said, however, the central bank could not rule out downgrading its forecast of a moderate economic recovery - a hint that it might act again if clearer evidence of a slowdown emerged.
The yen's rebound pulled the Nikkei average off its peaks and helped Japanese government bond futures rebound from an early plunge.
Prime Minister Naoto Kan, whose Democratic Party swept to power a year ago but was thrashed in a July upper house poll, is keen to show that he is doing something about the economy ahead of a challenge from Ichiro Ozawa in a September 14 party leadership vote that could split the party.
Kan was to meet Shirakawa after the policy board meeting, and his cabinet was to decide the basic thrust of additional measures to help the slowing economy.
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