Nothing New Expected or Delivered from the Bank of Japan Policy Board After Latest Meeting

September 7, 2010

Just a week before its regular September meeting, the Policy Board had held a three hour six minute unscheduled meeting that by an 8-1 vote had increased the amount of money to be provided through fixed-rate funds-supplying operations to banks against pooled collateral, so no additional easing was to be expected at this time.  The earlier meeting on August 30 had created a JPY 10 trillion six-month facility, enhancing  3-month lines of credit totaling JPY 20 trillion introduced in December 2009 at JPY 10 trillion and doubled three months later.  Investors have been unimpressed by this gesture, since it is a weaker initiative than other easing possibilities (e.g. returning to zero interest rates, declaring a formal inflation target, and going back to outright quantitative easing as practiced in 2001-06).  Pundits also complained that the step taken at end-August does not explicitly address the rising yen and weak equity prices, which pose the main threats to Japanese economic growth and that this facility had not prevented growth from slowing in 2010.

Today’s statement from monetary authorities indicates that they met this week for another six hours three minutes over two days and voted unanimously to unveil no further easing steps.  Nine hours of talks within eight days is a lot of discussion time to conclude with the same economic forecast as before and only a modest enhancement of actions to promote easier credit market conditions.  The statement does not mention the yen, which touched a new high for the move of 83.51 per dollar today, and BOJ Governor Shirakawa later at his press conference indicated there is little officials can do to block upward pressure on the exchange rate. 

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



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