Page last updated at 10:37 GMT, Tuesday, 1 December 2009

Bank of Japan acts to boost economy

Bank of Japan Gov. Masaaki Shirakawa
Bank of Japan's governor Shirakawa called an emergency meeting

The Bank of Japan has announced new measures to boost the economy and tackle deflation.

After an emergency meeting, the bank said it would inject 10 trillion yen ($114bn; £70bn) into the economy by offering banks cheap short-term loans.

It wants to make more money available to encourage banks to increase lending to business and individuals.

But analysts suggested it looked more like a political gesture than a real move to support the economy.

"This must be government pressure... if they were free from pressure, they wouldn't have done anything, because they've been saying their assessment hasn't changed," said Dariusz Kowalczyk, chief investment strategist at SJS Markets.

The Bank of Japan said the move would "firmly support Japan's economic developments toward recovery".

It is all about the announcement effect
Seijiro Takeshita, Mizuho Financial Group

The bank also kept interest rates unchanged at 0.1% at the meeting.

The government welcomed the bank's stimulus move. It has been concerned about the recent return of deflation.

The BBC's Roland Buerk in Tokyo says the government, which came to power in September, is this week working on an additional budget expected to be worth more than 2.7 trillion yen.

In April, the previous government spent 15.4 trillion yen to stimulate the economy, helping it to leave recession in the second quarter of this year.

Falling prices

Seijiro Takeshita, director at Mizuho International, said the amount of extra liquidity that today's move provided was negligible and that it was all about the "announcement effect".

He said the Bank of Japan could be doing more to support the economy - for example making borrowing even cheaper or buying up government bonds.

Last month, the Cabinet Office said in a statement that Japan was in a "mild deflationary situation".

Jonathan Allum, Japan strategist at KBC Securities, told the BBC that the Bank of Japan's action could be a sign that it is taking falling prices more seriously. It has previously been criticised for not acting fast enough to counter falling prices.

"This is the beginning of a process... if they persevere it might be effective but it is a medium to long-term prognosis."

Dollar/yen graph

The economy also faces the challenge of a rise in the value of the yen, which makes the country's exports more expensive in global markets.

But Mr Allum said that the problem stemmed more from the weakness of the dollar than the strength of the yen, so it would be difficult for Japan to come up with a solution.

The Bank of Japan's policy officials are meeting the Cabinet on Wednesday to discuss the economy.



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FROM OTHER NEWS SITES
Financial TimesDeflating the bubble - 52 mins ago
China Post BOJ offers more liquidity; gov't backs off - 9 hrs ago
CNBC BOJ Offers More Liquidity at Emergency Meeting - 12 hrs ago
Telegraph Japan steps up quantitative easing to fight deflation - 17 hrs ago
The EconomistFeeling deflated - 20 hrs ago
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