Public Administration News
||Japan announces fresh stimulus measures
||Monday, August 30, 2010
Knowledge Management in Government
||Aug 30, 2010
TOKYO - Japan on Monday unveiled an 11-billion-US-dollar stimulus
and announced monetary steps to safeguard a fragile economy and curb
the impact of a strong yen, but markets were left unimpressed.
Prime Minister Naoto Kan announced the 920-billion-yen stimulus package
and the central bank extended a multi-billion-dollar loan scheme in a
bid to boost an economy beset by deflation and curb the strength of the
Kan said the plan will include steps to boost employment for graduates,
investment in green industries and support for smaller businesses and
measures to boost consumption, adding it would get final approval on
The stimulus package would be financed by reserve funds, but Kan added
that the government would consider compiling an additional budget if
The announcement followed an emergency meeting by the Bank of Japan
in response to recent government pressure to counter the strong yen.
But the unit moved higher after the bank unveiled its plans, with
In its second loan expansion since March, the bank said it would offer
10 trillion yen (118 billion US dollars) in six-month low interest
loans in addition to 20 trillion yen from December's three-month loan
Domestic banks will be able to borrow a total of 30 trillion yen
from the central bank for maximum of six months against pooled
collateral, at the rate of 0.1 percent.
The move would help lower interest rates in the market place with a
view to easing the yen's strength, said the bank, which left its key
rate unchanged at 0.1 percent.
"The bank believes that the monetary easing measure, together with
the government's efforts, will be effective in further ensuring Japan's
economic recovery," it said.
However, markets took a dim view of the widely expected BoJ steps, with
the yen strengthening to below 85 against the dollar and the Nikkei
index paring back earlier three percent gains to close up 1.76 percent.
With investors having anticipated the announced steps, which took place
on a day major forex centre London was closed for a public holiday, the
impact of the decision will be "close to zero," said Macquarie Bank's
"It's largely a charade," he said.
The strong yen, which last week hit 15-year highs against the dollar,
threatens the overseas profits of Japan's export sector, crucial to
driving growth while making imports cheaper and prolonging a
A recent government survey suggested that many companies in Japan were
considering moving production overseas if the yen stayed high.
Analysts say the BoJ, which has kept rates at 0.1 percent since the
height of the financial crisis, has little room to move. Despite low
rates, years of stagnation sapped demand for loans from companies and
"The latest measures serve little to boost the economy as there is no
demand to borrow money amid such currently bad business sentiment,"
said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research
And with the United States and Europe seemingly happy to reap the
trade benefits of their weaker currencies, analysts say any unilateral
currency move by Japan would be unlikely, and at best ineffective.
It last intervened in forex markets in 2004.
The country remains under pressure to protect its fragile recovery,
with weak gross domestic product growth of an annualised 0.4 percent in
the second quarter pointing to a slowdown.
Core consumer prices eased 1.1 percent in July, the 17th
consecutive monthly fall, casting a darker shadow over the government's
goal of ending deflation in the fiscal year starting April 2011.
Persistent deflation prompts consumers to defer purchases in the hope
of further price falls and deters corporate capital spending.
Fears for the health of the global economy have increased in recent
weeks, and US Federal Reserve chief Ben Bernanke on Friday vowed to act
if "unexpected developments" further threaten the shaky US recovery.