Bank of Japan Expands Liquidity-Enhancing Facility to Encourage Bank Lending

August 30, 2010

An unscheduled three-hour policy meeting was most noteworthy for actions not taken.  A statement released by the Policy Board noted recently unstable currency and equity markets but said nothing about planned currency intervention or steps explicitly aimed at the stock market.  Nor did officials change the key interest rate of 0.1% since December 2008 or the 1.8 trillion monthly size since 2009 of its JGB purchases.  All that was decide was an increase in the funds-supplying credit facility to JPY 30 trillion facility to promote bank lending.  The facility was established in December 2009 at JPY 10 trillion and doubled to JPY 20 trillion last March.  Neither of those earlier actions had any discernible effect on the strength of economic activity, and deflation persists.  Today’s statement pledges continuing “powerful monetary easing,” but bank of officials clearly doubt that there’s much else that can be done without incurring unwanted collateral damage.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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