BOJ eases monetary grip further to combat yen's rise+

TOKYO, Aug. 30 Kyodo -
The Bank of Japan on Monday eased its monetary grip further by expanding its
low-interest-rate funding program due to heightening concern that the yen's
recent sharp appreciation could derail the recovery of Japan's export-oriented
economy.
At an extraordinary policy meeting ahead of its scheduled Sept. 6 to 7 policy
meeting, the Japanese central bank also decided to maintain its key interest
rate at a razor-thin 0.1 percent.
The BOJ's action came just before the government decided on the basic thrust of
additional economy-spurring measures the same day, amid a chorus of calls from
business leaders for the government to take immediate action to ease the
adverse impact on corporate earnings from the strong yen, which hit a 15-year
high against the dollar last week.
BOJ Governor Masaaki Shirakawa said at a news conference after the BOJ meeting,
''Reflecting downside risks to the economy, we implemented the additional
easing in a look-ahead manner, or in advance.''
Prime Minister Naoto Kan told reporters separately after meeting with Shirakawa
later in the day, ''We intend to closely monitor how the (government's)
economy-spurring measures, taken in tandem with the BOJ, and the monetary
policy, will generate effects hereafter.''
The government said the same day it will use 920 billion yen in reserve funds
in the fiscal 2010 budget to adopt fresh economy-spurring measures, which will
feature the extension of incentives for purchasing environmentally friendly
consumer appliances and houses, as well as some employment support.
The BOJ's unscheduled policy meeting was held after Kan said Friday that Japan
will take ''decisive action'' when necessary against volatile foreign exchange
rates, while expressing hope the central bank would implement flexible and
agile policy measures to address the strengthening of the yen.
A strong yen eats into Japanese exporters' overseas profits when repatriated
and can hurt the export-reliant economy.
In a move to make more funds available to financial institutions, the BOJ will
expand its lending program by launching a new 10 trillion yen, six-month
operation, in addition to its current 20 trillion yen, three-month funding
program.
As a result, the total size of loans offered by the BOJ at a fixed interest
rate of 0.1 percent under the funding operation it introduced in December will
increase to 30 trillion yen from 20 trillion yen.
The BOJ's additional credit easing, however, failed to impress investors as the
expansion of the lending program was within market expectations and the news
led the dollar to fall by 1 yen to the upper 84 yen level during Tokyo trading
hours amid persistent worries that the U.S. economy may be losing steam.
Takahide Kiuchi, chief economist at Nomura Securities Co., suggested that the
BOJ's decision itself would unlikely be enough to curb the recent yen-buying
momentum against the dollar and other major currencies.
''With the Federal Reserve Board concerned about (the Untied States) falling
into Japanese-style deflation, it is expected to implement additional easing
aggressively and thus it is easier for the yen's appreciation momentum to grow
further in financial markets,'' he said.
Kiuchi added that BOJ will likely continue to face pressure from the financial
markets to ease its monetary grip if the yen's rise and stocks' decline
continue as Monday's decision came just in line with expectations and is
unlikely to generate a sense of feeling among market players that there would
be no more easing.
BOJ chief Shirakawa told the news conference that the BOJ was ''conscious'' of
the government's efforts to underpin the economy, but stressed that the central
bank's decision on additional monetary easing was made of its own accord,
denying speculation that the central bank had bowed to political pressure to do
more for the economy.
Shirakawa expressed concern over the course of the U.S. economy, citing a
series of dismal U.S. economic indicators released recently, including a
downward revision to U.S. gross domestic product data for the April to June
quarter.
''The strength of emerging economies and the recent weakness in the United
States, I intend to watch carefully how these factors affect each other
hereafter,'' he said.
Monday's gathering was the BOJ's first unscheduled policy meeting since May 10,
when its Policy Board decided to revive a dollar-swap arrangement with the U.S.
Federal Reserve and other major central banks as part of efforts to restore
stability to global financial markets amid concern over the debt problems in
Greece.
At the meeting, one Policy Board member, Miyako Suda, opposed the expansion of
the bank's lending facility while the other eight policymakers voted for it.
The decision to keep the key target rate for unsecured overnight call money at
0.1 percent was made unanimously.
==Kyodo
2010-08-30 23:12:12