Bank of Japan takes stimulus steps

(News Today) - The Bank of Japan moved to halt the rise of the yen and support the country's faltering economy by expanding a special bank lending programme by half to Y30,000bn.

The central bank's decision on Monday, a day before Naoto Kan, prime minister, is scheduled to unveil economic stimulus measures, highlights the growing sense of concern about the weakness of the Japanese economy and the negative impact of the yen's sharp appreciation against the dollar.

Concern is also rising about the outlook for major developed economies, prompting Ben Bernanke, US Federal Reserve chairman, to send a message on Friday that if necessary, the Fed would support the sputtering economy with further measures.

Masaaki Shirakawa, the Japanese central bank governor, returned early from Jackson Hole for the unscheduled bank board meeting and is expected to meet later on Monday with Mr Kan, who last week urged the governor to act swiftly to tackle the yen's rise.

The new Y10,000bn added to the lending programme will provide funds for six months. The existing Y20,000bn programme has a three-month duration.

Japan's economy in the second quarter grew an annualised 0.4 per cent, according to preliminary government data, and was overtaken by China as the world's second largest.

Markets responded enthusiastically to news of the BoJ meeting, with stocks advancing on Monday even before the latest steps were unveiled as speculation grew about fresh monetary and fiscal measures to tackle the situation.

The Nikkei was up 2 per cent by mid-afternoon in Tokyo, after last week falling below the psychologically important 9,000 level as the yen rose to a 15-year high against the US dollar and neither the government nor the BoJ appeared ready to take decisive action.

The central bank said on Monday that Japan's economy "is likely to be on a recovery trend."

However, it added that "uncertainty about the future, especially for the US economy, has heightened more than before, and the foreign exchange and stock markets have recently been unstable."

"In these circumstances, the bank judged it necessary to pay more attention to the downside risks to the outlook for Japan's economic activity and prices," the bank said.

However, there was some scepticism about the effectiveness of the BoJ's move, with the yen and government bonds bouncing back from initial losses after the central bank's announcement and the Nikkei trimming gains.

What has been driving yen appreciation since May are external factors including sharp falls in overseas yields, stocks and heightened risk aversion in the market and not monetary or fiscal policy, wrote Tohru Sasaki, chief foreign exchange strategist at JP Morgan in Tokyo, in a note, suggesting that new central bank action will have limited impact on the yen.

Source : CNN

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