— Correcting 9th Paragraph To 8-To-1 Vote, Instead of 9-To-1
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 an 8-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.
Shirakawa quoted Suda as telling the board that Japan’s economic
data had been moving in line with the baseline scenario, thus arguing
that the BOJ would need to spend more time examining the impact of the
strong yen and weak stocks.
Suda was also concerned that today’s decision could be interpreted
to mean that the BOJ were taking action only to respond to the rise in
the yen, said the governor.
Suda also warned that the significant increase in the funding
program at the very low interest could lead to an economic bubble, he
said.
Shirakawa also said the BOJ would consider additional easy policy
if Japan’s economy worsened down the road.
But he didn’t mention policies the BOJ may or may not take, saying
that the BOJ would consider effective tools depending on the economic
climate at the time.
Shirakawa said the BOJ is always watching both desirable effects
and side-effects of monetary policy measures, including lowering the
policy interest rate from 0.1%.
“We will not rule out any options in advance and have no
preconception,” he added.
The governor noted that there is a limit to what the BOJ can to do
to help fight deflation.
“Monetary policy plays an important role (in fighting deflation)
but not everything will be resolved by monetary policy alone,” he said.
Shirakawa said both foreign exchange rates and stock prices have
been unstable, reflecting growing uncertainty over the U.S. economy
following weak GDP, jobs, retail sales and housing data.
The U.S. economic growth in the second quarter has been revised
down to 1.6% from a preliminary 2.4% rise.
Meanwhile, Shirakawa said emerging economies are still growing
strongly and that a slightly slower economic expansion in China is
better for its sustained growth.
Shirakawa noted that many factors prompted him to call an
extraordinary policy meeting today to discuss ways to counter downside
risks, instead of waiting until the next monthly policy-setting meeting
on Sept. 6-7.
He said today’s credit easing was also influenced by his
“important” exchanges with U.S. Federal Reserve Chairman Ben Bernanke,
European Central Bank President Jean-Claude Trichet and other central
bank chiefs at the annual Jackson Hole economic policy symposium hosted
by the Federal Reserve Bank of Kansas City.
The governor cut short his visit in the U.S., returning to Tokyo on
Sunday evening so he could call a board meeting on Monday to make a
swift decision as the strong yen and weak share prices threatened to
hurt business and consumer sentiment.
Shirakawa said he was scheduled to meet Prime Minister Kan on
Monday afternoon as part of their regular exchange of views.
The governor stressed that the BOJ board made its own decision, but
added that the policymakers also had in mind the government’s move to
draft the framework for its economic stimulus package on Tuesday.
He also said that there is no gap between the BOJ and the
government in the view that downside risks are increasing.
Shirakawa repeated the BOJ’s mantra that it will continue to
consistently make its utmost contribution as the central bank to
supporting sustained economic growth and moving Japan out of years of
deflation.
The biggest issue confronting Japan is that its growth foundation
is declining, he said, adding that boosting the potential growth should
raise expectations for income growth.
As for the strong yen stemming from the cautious view on the U.S.
economy, Shirakawa said there is no one-to-one relationship between
the purpose of monetary policy action and developments in foreign
exchange rates.
Shirakawa explained that the yen hasn’t moved much against the
dollar since the last policy meeting on Aug. 9-10 but that the yen’s
appreciation has been the greatest against the euro.
Shirakawa repeated this earlier comments that he sees no imminent
need to increase the size of the BOJ’s outright Japanese government bond
purchases from the current Y21.6 trillion annually, which he called “the
most appropriate level.”
tokyo@marketnews.com
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