TOKYO (MNI) – Bank of Japan Governor Masaaki Shirakawa returned to
Tokyo earlier than scheduled on Sunday evening, raising the possibility
that the BOJ will hold an extraordinary board meeting on Monday to
discuss ways to prevent the yen’s rise from hurting the modest economic
recovery.
The governor was originally scheduled to return on Monday from the
Jackson Hole economic policy symposium hosted by the Federal Reserve
Bank of Kansas City.
He appeared to have decided that it would be better to take
monetary policy action in step with the government, which will announce
basic plans for a fiscal stimulus package on Tuesday aimed at
alleviating the negative impact of a rapid rise in the yen and helping
the economy move out of deflation.
The BOJ’s nine-member board is scheduled to hold its monthly
policy-setting meeting on Sept. 6-7.
Policy options for the central bank are limited as it has already
conducted a series of measures to maintain the extremely accommodative
financial conditions.
But the BOJ board still could expand its fund-injecting operations
at the super-low 0.1% for funding needs longer than overnight by raising
the amount of the three-month operations to Y30 trillion from Y20
trillion or extending the maturities to six months.
Meanwhile, the board is unlikely to consider cutting the target for
the overnight lending rate from the current 0.1%, which is the lowest
possible rate without hurting money market functions.
It has also ruled out boosting the scale of its outright Japanese
government bond buying, which could be labeled as central bank financing
of fiscal spending and thus could hurt public confidence in the BOJ.
On Friday Prime Minister Naoto Kan told reporters that he planned
to meet Shirakawa sometime after the central bank chief returns to
Tokyo, urging the BOJ to conduct “flexible” monetary policy.
It is still undecided when the two leaders will meet.
Kan also vowed to take “firm” action to counter the drag of a rapid
rise in the yen when necessary, without elaborating. His remarks
followed comments by Finance Minister Yoshihiko Noda that the MOF will
take “appropriate” action to counter a drastic movement in the
dollar/yen exchange rate, a suggestion of yen-selling market
intervention.
The government’s new economic package will include measures to help
new graduates find jobs through trial hire and internship programs,
support people living under the poverty line and back small businesses’
investment in technological development, the Asahi Shimbun newspaper
reported last week.
In order to support consumer spending, the government also plans to
extend the reward program for building ecologically friendly houses and
enhancing the energy efficiency of existing homes. The program for such
renovations will end next March and that for the construction of
single-family houses will finish June next year.
The BOJ board chaired by Shirakawa has been cautious about taking
additional monetary easing measures as it has received no tangible hard
data that would prompt it to revise down its growth forecast or risk
balance assessment.
On Aug. 10, Shirakawa said fluctuations in foreign exchange rates
do not directly dictate the BOJ’s monetary policy-making because the
forex impact on economic growth must be examined in a global and
comprehensive context.
Shirakawa also told a news conference after the last policy meeting
on Aug. 9-10 that the BOJ board still believes that upside and downside
risks to Japan’s sustained economic growth are largely balanced despite
signs of a slower U.S. recovery and the recent appreciation of the yen.
He also said the economic climate for Japan had improved since last
November, when the yen firmed past Y85 to the dollar in the aftermath of
the Dubai financial crisis, posing a threat to an emerging recovery.
The global economy has now been supported by strong growth in
emerging countries, corporate profits are up and borrowing costs are
down, he noted during the news conference.
At the same time, Shirakawa did say that the board spent much of
its time debating how the yen’s strength would affect business sentiment
and the overall economy.
Then on Aug. 11, the yen firmed to Y84.72 in European trading,
hitting the highest level in 15 years, prompting the governor to issue a
brief statement on Aug. 12 that the BOJ will keep a close watch on the
adverse effects of the recent rise in the yen and the slumping stock
market on Japan’s economic recovery.
The yen rose to a fresh 15-year high against the dollar last week
and hit a nine-year peak versus the euro, prompting speculation the BOJ,
on instruction from the Finance Ministry, might initiate direct market
intervention for the first time since March 2004.
The strong yen also triggered selling of exporter shares, sending
the benchmark Nikkei 225 index below 9,000 on Wednesday, when it ended
at 8,845.39, down 149.75 points, or 1.66%, from Tuesday. It was the
lowest closing level since April 30, 2009.
A sell-off in the Tokyo stock market could hurt both business and
consumer sentiment, clouding a self-sustained economic recovery, while a
drastic, one-sided surge in the yen’s value will undermine exporter
profits and thus hit the main driver behind the current modest recovery.
tokyo@marketnews.com
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