Bank of Japan Extends Duration of Quantitative Credit Facilities

July 15, 2009

Two unanimous 8-0 votes by the BOJ Policy Board agreed to leave the seven-month-old 0.1% overnight rate target unchanged and to push backward the expiration of temporary liquidity-supporting measures (e.g., outright purchases of corporate bonds and commercial paper) by three months.  A statement from the central bank upgraded the economic statement, claiming that conditions are no longer worsening, that exports and production are picking up, that business sentiment has stopped deteriorating among large manufacturers and that even consumption shows some signs of a pickup.  Nonetheless, projected growth was revised slightly lower below the previous estimates made in late April, and negative core inflation is forecast for both this and next fiscal year.  Profits are weak, financing conditions are still tight albeit less so, and investment continues to drop sharply.  While the adjustment of inventories has made considerable progress, questions still surround prospects for final demand.  Today’s statement does not address recent strength in the yen, but there have been indications that intervention is being considered on a contingency basis.  Without improved Asian growth, Japan would be in deep trouble.  Minutes of this week’s policy meeting, which lasted five hours and 35 minutes over two days, will be published in a month on August 14th.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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