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BOJ chief expects grim times ahead
(Agencies)
Updated: 2008-12-17 08:09 Bank of Japan Governor Masaaki Shirakawa said conditions are severe for Japan's economy and he is examining the effects of quantitative easing, as government officials become increasingly concerned about a deepening recession. "In addition to falling exports due to a slowdown in overseas economies, corporate profits, household finances and job conditions are worsening, and it is taking a toll on domestic private demand," Shirakawa told a parliamentary finance committee two days before his policy board meets to review rates. "Output, employment and consumption data were all severe," he said, in remarks that sent government bond futures rising.
The Bank of Japan lowered rates to 0.3 percent in October and a string of weak data, including its own tankan survey showing the biggest plunge in the nation's business confidence since the first oil crisis of the 1970s, has analysts debating whether it will move again this week. The US Federal Reserve is expected to cut rates almost as low as those in Japan, as ill effects from the financial crisis send many developed countries into recession and sluggish growth dogs major emerging economies such as China and India. Japan, like the United States, is already in recession and Finance Minister Shoichi Nakagawa called yesterday for the nation's central bank to examine more measures to help the economy and boost a cash squeeze for companies as the year-end nears. March JGB futures, which had been weaker, rebounded to 139.32, up 0.10 point on the day, while the yield on short-term JGB notes, more sensitive to the monetary policy outlook, fell to the lowest since January. Shirakawa said that Japanese monetary conditions were rapidly becoming less accommodative and the BOJ would consider appropriate actions while looking at the economy and financial conditions. He said he was examining the effects and side effects of quantitative easing and zero interest rates, a policy where central banks flood the banking system with money to promote lending. Beset by a banking crisis, chronic deflation and lacklustre growth, Japan followed such a policy for five years and only ended it in 2006. Japanese media reported the Bank of Japan would examine measures such as buying commercial paper outright, something the Federal Reserve has started due to the financial crisis, as a way to help corporations raise money. Also among measures the central bank could examine would be to boost the amount of long-term Japanese government bonds it purchases from the current 1.2 trillion yen ($13.24 billion) per month and expand the type of collateral it accepts in fund operations, the Nikkei business daily reported, without citing sources. The government last week outlined plans to help companies boost liquidity, including having the Development Bank of Japan, a state-affiliated financial institution, buy commercial paper, but Finance Minister Shoichi Nakagawa asked for more measures to be investigated by the central bank. "We acknowledge the Bank of Japan's independence. But it is a responsibility stipulated under law that the Bank of Japan and the government keep in close contact with each other in guiding economic policy," Nakagawa told reporters. "I hope the Bank of Japan reaches an appropriate conclusion at its two-day meeting, bearing in mind Japan's economic and liquidity conditions." |
