March 28, 2024

Japan Keeps Monetary Policy Steady

In a unanimous vote, the bank’s board stuck to its strategy of expanding the monetary base at an annual pace of 60 trillion yen to 70 trillion yen, or $585 billion to $682 billion, through purchases of government bonds, commercial debt and other assets. Those moves pump money into the economy.

After the central bank’s meeting last month, it unleashed what analysts have dubbed a “shock-and-awe” monetary policy, a sea change for a bank that had come to be known in recent years for its caution and conservatism.

Under its new governor, Haruhiko Kuroda, the Bank of Japan has gone all-out to fight deflation. Declaring he would do “whatever it takes” to combat falling prices, Mr. Kuroda last month announced that the bank would seek to double Japan’s monetary base, as well as the bank’s holdings of Japanese government bonds, by the end of 2014. The aim of such a policy is to keep interest rates low, prompting consumers to spend and businesses to invest in growth and jobs.

In recent days, however, worries have grown about rising interest rates in the government bond market, which could threaten Japan’s monetary policy. Japan is vulnerable to rising borrowing costs because of its high public debt, which is twice the size of its economy. Bonds are also the main financial asset held by banks, pension funds and insurance companies, making a surge in debt yields perilous.The biggest concern for the central bank is volitility in the bond barket, where yeilds are still above levels marked befor its meeting last month, Cameron Umetsu, a strategist at UBS, said in a note published ahead the decision Wednesday.

“This can be viewed as one of the ‘unintended effects,’ which, if sustained, could dilute the effectiveness of the new quantitative and qualitative easing framework,” he said.

The scale of Japan’s quantitative easing is striking. Assuming that the Japanese economy grows by 2 percent a year, the Bank of Japan would expand its assets to just under 60 percent of the country’s gross domestic product, according to estimates from CLSA Asia-Pacific Markets. The U.S. Federal Reserve’s assets, which now total about 20 percent of the U.S. economy, and the European Central Bank’s assets, which come to about 28 percent of the euro zone’s G.D.P., pale in comparison.

Japan stands out in another important way. Under Prime Minister Shinzo Abe, who took office in December and has been the main champion of the bank’s new audacity, Japan is coupling its monetary push with heavy government spending, contrary to calls for austerity in the United States and Europe.

But in Japan, such calls have largely fallen on deaf ears; hardly two months into office, Mr. Abe pushed through an emergency stimulus package to the tune of 10 trillion yen, and the National Diet, the Japanese parliament, is expected to pass a whopping initial 92.6 trillion yen budget for 2013, with heavy spending on public works.

By contrast, the Fed and E.C.B. have been forced to depend on monetary policy alone to stave off stagnation and bring about an economic recovery. In both the United States and Europe, a significant increase in government spending remains too politically controversial.

That is not the case in Japan, where Mr. Abe’s ruling Liberal Democratic Party enjoys a solid majority in parliament’s powerful lower house, and appears set to ride sky-high opinion polls to victory in summer elections for the upper house.

Still, critics have pointed to Japan’s skyrocketing public debt as proof that such spending is hardly sustainable. Japan’s latest spending packages, they say, will be the final push that could send Japan plummeting into a Europe-like debt crisis, but of even bigger proportions.

Defenders of the bank’s monetary policy had argued that Japan’s bold stimulus efforts would not push interest rates higher, because the central bank promises to buy bonds the government issues.

But in recent days, yields have been volatile, with the key 10-year nominal government bond yield hitting five-year highs last week before later settling down. Traders blamed the central bank’s purchases for creating a lack of liquidity in bond markets.

Still, some analysts say the spike merely reflects healthy inflation expectations.

The Bank of Japan “learned is that it is not easy” to control market expectations, Masaaki Kanno, chief economist at JPMorgan Securities Japan, said in a research note.

Article source: http://www.nytimes.com/2013/05/23/business/global/japan-keeps-monetary-policy-steady.html?partner=rss&emc=rss

Bank of Japan Expands Efforts to Prop Up Nation’s Economy

TOKYO (AP) — Bowing to government pressure, Japan’s central bank on Tuesday pledged more aggressive action to lift the economy, including setting a 2 percent inflation target.

The Bank of Japan said it would conduct “open-ended” asset purchases to help achieve the goal of breaking out of a long spell of deflation.

Prime Minister Shinzo Abe had urged the central bank to ease monetary policy further to prop up the economy.

Whether the effort will succeed remains to be seen: the central bank has not achieved even its 1 percent inflation target, with price increases hovering below 0.5 percent for the past two years despite surges in energy costs.

The central bank described its inflation goal as a “price stability target.” It said: “Under the price stability target, the bank will pursue monetary easing and aim to achieve this target at the earliest possible time.”

But it said it would also “ascertain whether there is any significant risk to the sustainability of economic growth, including from the accumulation of financial imbalances.”

Among the risks are a ballooning public debt, already well over twice the size of Japan’s gross domestic product.

Mr. Abe’s government is seeking to spur growth both through heavy spending on public works and other projects and through monetary easing. The central bank’s announcement on Tuesday was in line with expectations.

The government was determined that the central bank set a 2 percent inflation target, the trade minister, Toshimitsu Motegi, told reporters on Monday. “We want a clear inflation target to aim for,” Mr. Motegi said. “Other countries have inflation targets, and it’s not just 1 percent. They are all at least 2 percent,” he said.

He said the monetary easing, which has involved tens of trillions of yen (hundreds of billions of dollars) in asset purchases and years of near-zero interest rates, so far had been “inadequate.”

The Abe government is expected to nominate as Bank of Japan governor an expert known to favor its policies when the term of the current governor, Masaaki Shirakawa, ends this spring.

However, Mr. Motegi rejected accusations that the government’s demands were meant to erode the central bank’s independent status.

“We are not doing this to gang up and pick on Mr. Shirakawa,” he said. But he added that “the policy of aiming to escape deflation will not change, not today, not tomorrow or the day after tomorrow.”

Article source: http://www.nytimes.com/2013/01/22/business/bank-of-japan-expands-efforts-to-prop-up-nations-economy.html?partner=rss&emc=rss

Japan Proposes Aggressive Recovery Plan

The Japanese government is desperate to pull the economy out of a recession stemming from the March 11 earthquake and tsunami as well as the problems related to the Fukushima nuclear plant. The catastrophes damaged factories, disrupted supply chains, caused a crippling power shortage and curtailed consumer spending.

But the government has also been pressed to show that it will be able to finance such a plan. After years of stimulus spending, Japan’s public debt is already twice the size of its $5 trillion economy.

Addressing the nation Friday, Prime Minister Naoto Kan said that the government would find the money to support a robust reconstruction drive.

“This plan takes us beyond immediate recovery to the next stage, full-scale reconstruction,” Mr. Kan said, adding: “We will also fulfill the responsibility to secure funds.”

Japan is still reeling from the sheer extent of the damage unfurled by its recent earthquake, tsunami and subsequent nuclear crisis. At the end of June, damage from the quake and tsunami alone had already reached $210 billion, according to estimates by Munich Re, a German reinsurance company.

That makes the events of March 11 the world’s costliest disaster, surpassing Hurricane Katrina, which caused about $125 billion in economic damage, according to Munich Re.

The government is also contributing to some of the billions of dollars of compensation to be paid out to victims of the accident at the Fukushima Daiichi Nuclear Power Plant, owned by Tokyo Electric Power.

According to the government plan released Friday, new spending will include money for new roads and ports, support for farming and fisheries in the region and help for small- and medium-size companies.

In particular, the plan said it would provide incentives for companies to rebuild their factories in the Tohoku region, a bid to stem a stream of companies that are moving their operations overseas. In helping to rebuild towns and villages along Tohoku’s ravaged coast, in northeast Japan, the government will work to support the region’s aging population, providing public housing to those who are unable to rebuild their homes, the plan said.

To help pay for the outlays, the government said it would issue special reconstruction bonds, raise taxes, cut spending and could even sell its prized stake in two former state-run corporations.

The plan would require reconstruction bonds and extra tax revenue of up to 10 trillion yen, the government has suggested, though it did not include that figure in the final plan. It also did not specify which taxes might be raised.

To secure further financing, the government will also consider selling shares in the phone company NTT and Japan Tobacco, Tatsuo Hirano, the minister in charge of reconstruction, told reporters. The Japanese government owns 37 percent of NTT, a stake worth 2.1 trillion yen, and 50 percent of Japan Tobacco, worth 1.7 trillion yen.

Mr. Kan, whose ratings have nosedived over his handling of the disaster response so far, may not be around to see much of the plan in action, however. The leader survived a vote of no confidence in June only after offering a vague suggestion that he might resign.

Article source: http://www.nytimes.com/2011/07/30/business/global/japan-proposes-aggressive-recovery-plan.html?partner=rss&emc=rss