Bank of Japan slashes rates to 0.1%
Bank of Japan slashes rates to 0.1%
FT
By Lindsay Whipp and Mure Dickie in Tokyo
Published: December 19 2008 05:22 | Last updated: December 19 2008 18:54
http://www.ft.com/cms/s/0/6acbcbbc-cd8a-11dd-8b30-000077b07658.html
The Bank of Japan on Friday cut its policy rate to just 0.1 per cent – three days after the US Federal reserve moved its rate almost to zero – and announced it would take the unorthodox step of directly buying commercial paper in order to ease a corporate credit crunch.
The 20 basis point reduction to the overnight call rate – the BoJ’s second in two months – came amid a slew of economic news and recent rises in the yen to 13-year highs.
However, Masaaki Shirakawa, BoJ governor, said no member of the bank’s policy board now seemed to think that expanding base money would stimulate the economy.
The Bank of Japan reduced its overnight call rate to 0.1 per cent from 0.3 per cent, amid a rapidly deteriorating economy.
The bank had been under mounting pressure to act more boldly after its closely followed Tankan survey of business confidence on Monday showed the sharpest decline in more than three decades.
The yen briefly fell after the rate cut announcement and equity markets rose, but the currency soon climbed back to its previous level of about Y89 against the dollar, while the benchmark Nikkei 225 shares index closed 0.9 per cent lower at 8,588.52.
Market participants said the lack of strong market reaction reflects widespread expectations for what was a mainly symbolic rate cut, with some saying that if the BoJ had not acted then, the yen might have risen strongly.
However, the central bank’s planned purchases of commercial paper could revive the market in such short-term unsecured debt and make it easier for Japanese companies to fund their day-to-day operations particularly toward the end of the financial year in March.
The shift was “potentially important” said Daiwa Securities in a research note. “If the BoJ is prepared . . . to purchase a larger quantity of riskier assets, Japan may yet avoid falling back into the grip of persistent deflation.”
The BoJ will also increase its outright purchases of Japanese government bonds to Y1,400bn a month from Y1,200bn.
Expanded bond buying was a key part of the policy of “quantitative easing” used by the BoJ as its main tool of monetary policy after interest rates got stuck near zero this decade.
But Mr Shirakawa insisted he had not returned to quantitative easing, under which the central bank targeted financial system liquidity instead of interest rates.
The woes of Japan’s recession-mired economy were underlined on Friday by data showing steel production fell 12.9 per cent in November, its steepest decline in a decade.
Adding to the gloom, the cabinet office cut its economic outlook, saying it now expected no price-adjusted growth at all for the year to March 2010.
Nor could the BoJ find anything positive to say in its statement about Japan’s economic prospects. “Economic conditions have been deteriorating and are likely to increase in severity for the immediate future,” it said. “Uncertainty in the outlook . . . has increased.”
Government leaders had in recent days signalled increasing impatience with the BoJ, but Shoichi Nakagawa, finance minister, and economics minister Kaoru Yosano both onb Friday welcomed its moves.