Bank of Japan Counting on a Recovery — Eases No Further

May 20, 2011

The Bank of Japan decided by a 9-0 vote not to loosen further its already accommodative stance in spite of worse-than-forecast GDP data that showed an annualized contraction of 3.4% over the two quarters between 3Q10 and 1Q11.  More significant negative growth is forecast for the present quarter, and 3Q11 may be suspect as well.  But central bank officials held to the view that a moderate pace of recovery will begin in the autumn, lifted by stronger export demand and investment to replace damaged production facilities.  The Policy Board after meeting for some 5-1/2 hours on Thursday-Friday ended with greater consensus than at its prior April 28 meeting.  Unlike then, Board member Nishimura did not recommend to boost the asset purchase plan by another JPY 5 trillion (about $400 billion).  That request had been rejected in April by a vote of 8 to 1.  It appears that members of Prime Minister Kan’s government are not pressuring the central bank to ease further.  As noted in the BOJ Preview, the quantity of excess reserves has lessened somewhat this month after spiking very sharply in March and April.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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