TOKYO (MNI) – Bank of Japan Governor Masaaki Shirakawa said on
Monday that the BOJ board’s decision to ease credit further was a
preemptive strike against a U.S. downturn and other emerging downside
risks that could hurting Japan’s modest economic recovery.

The BOJ board made the move to make the already very accommodative
financial conditions even more stimulative, also keeping in mind that
the government is drafting additional fiscal stimulus to fight the
negative impact of the yen’s rapid rise, Shirakawa told reporters.

Both the U.S. Federal Reserve and the BOJ are seeking to conduct
“appropriate” monetary policy but the difference is that while the Fed
earlier this month acted only to stave off a credit tightening, the BOJ
has just expanded funding in a more preemptive manner, hoping to guiding
various interest rates lower, he said.

“We have concluded that we need to pay more attention to downside
risks stemming from unstable foreign exchange and stock prices following
weak U.S. economic data,” Shirakawa told a news conference after a an
extraordinary policy-setting meeting.

Shirakawa noted that the upside and downside risks had been largely
balanced until recently since April, when the board presented its
medium-term forecasts in the semi-annual Outlook Report.

“But gradually more board members have become concerned about
downside risks to Japan’s economic and price developments, leading to
today’s decision,” he said.

However, the governor said the BOJ board will spend more time over
the next two months digesting the latest data before deciding whether it
has to change its conviction that Japan’s economy should stay on a
recovery track in the next Outlook Report on Oct. 28.

“Looking ahead, we are not ruling out the possibility of revising
down our baseline scenario. We will continue to examine both the
baseline scenario and the risk factors,” he said.

The BOJ board on Monday voted unanimously to leave its target for
the overnight lending rate among commercial banks at 0.1%, while
deciding, in a 9-to-1 vote, to expand its funding program at the bargain
overnight rate by starting a six-month operation totaling Y10 trillion.

The BOJ board also decided to continue its three-month funding
operation at the policy rate, leaving its scale at Y20 trillion.

Under the new six-month funding program, the BOJ will offer cash
once or twice monthly, with each operation totaling about Y800 billion
while it will continue to offer three-month funds twice weekly, also at
the rate of Y800 billion per operation.

By adding the six-month tool, the BOJ said it “will encourage a
decline in market interest rates and further enhance easy monetary
conditions.”

Miyako Suda, the longest-serving BOJ policy board member, voted
against the introduction of a six-month fund-injecting operation and a
substantial increase of the amount of funds to be provided through the
new operation.

tokyo@marketnews.com
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