Japan central bank extends emergency credit steps
Japan's central bank extended a series of emergency measures to ensure that credit keeps flowing to companies, aiming to nurture a recovery now that the world's second-biggest economy has ended its slide.
Japan’s central bank extended a series of emergency measures to ensure that credit keeps flowing to companies, aiming to nurture a recovery now that the world’s second-biggest economy has ended its slide.
The Bank of Japan’s eight-member policy board also voted unanimously Wednesday to leave its overnight call rate target unchanged at 0.1 percent, as widely expected by the market.
“Japan’s economic conditions have stopped worsening,” Bank of Japan Gov. Masaaki Shirakawa told reporters. “Public investment is increasing and exports and production are picking up. Business sentiment, especially of large manufacturing firms, has stopped deteriorating.”
The economy will begin recovering in the second half of this fiscal year through March 2010, the central bank said. Japan’s gross domestic product fell at a record annual pace of 14.2 percent in the first quarter.
Its assessment follows a similar upgrade earlier this week in a monthly report from the Cabinet Office. The government predicted better news in the coming months thanks to massive fiscal stimulus measures.
Still, the central bank warned of ongoing pockets of weakness that could undermine a recovery. Capital spending by companies is falling sharply. Private consumption, which accounts for more than half of the country’s gross domestic product, remains lackluster as unemployment rises.
In May, Japan’s jobless rate hit 5.2 percent — the highest level in five and a half years.
The fragility led policy board members to slightly reign in their economic forecasts.
They now expect real GDP to shrink 3.4 percent this fiscal year instead of the 3.1 percent decline projected in April. In the year through March 2011, they predict GDP will grow 1 percent, down from an earlier forecast of 1.2 percent.
Financial conditions are also “headed in the right direction but remain tight,” Shirakawa said. Policy board members thus decided to continue several emergency liquidity programs beyond their original Sept. 30 expiration date.
The central bank said it will buy commercial paper and corporate bonds for three extra months to Dec. 31. It will also extend a special lending program offering banks low-interest loans with eligible collateral.
The steps were among those introduced in the wake of last year’s global financial crisis and credit crunch. With interest rates close to zero, the central bank had little room to tweak regular monetary policy and instead focused on less conventional measures to help cash-strapped companies.
Japan’s interest rates are among the lowest of major economies. The Federal Reserve’s targeted range hovers between zero and 0.25 percent, while the European Central Bank held its benchmark rate at 1 percent at its last meeting.
The Bank of Japan will also extend to Feb. 1 a swap arrangement that provides foreign exchange liquidity in yen to the U.S. Federal Reserve. The move follows similar extensions by other central banks including the ECB.
Under currency swap arrangements, the Fed provides dollars in exchange for reserves of the other nation’s currency.
Learn more about reprints and licensing for this article.
