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Japan just mailing it in with latest stimulus

Bank of Japan Govenor Masaaki Shirakawa speaks during a news conference in Tokyo on Oct. 30, 2012.


The Bank of Japan has opted for a relatively modest easing of monetary policy, once again resisting growing political pressure for a more aggressive response in the face of worsening economic conditions and an overvalued currency that is derailing export profits. The central bank boosted its non-standard asset-buying of bonds and commercial paper (central bankese for money-printing) by ¥11-trillion ($138-billion U.S.) to ¥91-trillion.

The bank left interest rates unchanged, but at a range of zero to 0.1 per cent, it couldn't cut them any further if it wanted to.

The bank also reduced its outlook for an economy that is rapidly losing steam as exports falter and the boost provided by the post-tsunami recovery efforts winds down. The bank now forecasts growth for this fiscal year of 1.5 per cent, down sharply from its earlier prediction of 2.2. Some private economists say another recession looms, as key export markets flounder, and a festering dispute with China over ownership of a handful of uninhabited islands in the East China Sea slices Chinese demand for Japanese consumer goods.

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As might be expected, the market response was less than enthusiastic. The benchmark Nikkei 225 index reversed its recent upward trajectory and the yen rose against the U.S. dollar.

The main problem with central bank's response, analysts say, is that it doesn't begin to address the lack of demand for capital. And the dysfunctional government has yet to tackle badly needed structural reforms. Meanwhile, industrial production has fallen sharply and retail sales are coming in well below forecast.

The central bank's latest forecast for price inflation was also a bit of a concern for deflation watchers. The bank now forecasts as CPI in fiscal 2014 of 0.8 per cent, below its medium to long-range target of 1 per cent.

The "bank's view of fundamentals does not necessarily indicate that it will maintain a bias toward further easing, but [we] still believe the prospects of additional action could change on short notice," if the yen appreciates rapidly or political pressure intensifies, Barclays said in a note.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More


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