TOKYO—The Bank of Japan took additional monetary easing action as a drop in exports and output forced it to lower its economic outlook. It also issued a joint statement with the government stressing a commitment to fight deflation.
The central bank's policy board decided Tuesday to increase the BOJ's asset purchases to ¥91 trillion ($1.14 trillion) from ¥80 trillion, and to introduce a new lending facility designed to stimulate loans by banks.
The fresh measures marked the first time since May 2003 that the BOJ has taken easing steps two months in a row.
The bank said it took action to keep Japan's economic policy on the path "to sustainable growth with price stability." The BOJ also downgraded its assessment of the economy, noting declines in both exports and output, key drivers of the country's economic growth.
"Japan's economy has been weakening somewhat," it said in a statement, compared with its previous description of economic activity as "leveling off more or less.Government data earlier Tuesday showed industrial production in September posted the largest monthly drop since the March 2011 earthquake.
Output fell an unexpectedly large 4.1% from the month earlier, while exports dropped on weaker overseas economies, the central bank said.
Some BOJ watchers said heightened political pressure played a role in Tuesday's policy move, calling the joint statement a reflection of the government's attempt to strengthen its influence over the central bank.
"We see its key implication as a formal tightening of the government's grip on the central bank," Naohiko Baba, Goldman Sachs' GS -0.23% chief Japan economist and a former BOJ official, wrote in a report.
The government's move last week to compile an emergency stimulus package valued at ¥422.6 billion also was seen as adding pressure on the BOJ to move in sync to shore up the economy.
In the statement, the BOJ calls on the government to take steps to strengthen Japan's growth potential, while the government says it "strongly expects" the BOJ to continue powerful easing until deflation is overcome.
The report also says the BOJ will regularly report its outlook on prices to a ministers' meeting on deflation.
BOJ Gov. Masaaki Shirakawa said about the joint statement at a news conference: "It shows more clearly our shared understanding with the government on ending deflation." Government officials also highlighted its significance.
"Of course the independence of the BOJ is important, but a joint effort by the BOJ and the government is really needed, and it is clearly stated in the joint announcement, so this is a really important step," Vice Finance Minister Takehiko Nakao told The Wall Street Journal.
Political pressure aside, the BOJ action was anticipated, as expectations were that its fresh forecast on prices would fall short of its previously stated inflation goal.
In its semiannual outlook, decided at Tuesday's meeting, the BOJ said its nine-member board projects a 0.8% rise in the core consumer price index for the fiscal year starting April 1, 2014, below its 1% price goal introduced in February.
While the BOJ said in its outlook report that prices were likely to approach the 1% goal in fiscal 2014, Mr. Shirakawa said two board members—former private-sector economists—didn't agree with the view, indicating the bleak view even within the central bank.
A poll of 40 private economists by the Japan Center for Economic Research think tank released this month showed that on average, they expect the Japanese economy to have contracted 0.31% in the July-September quarter on an annualized basis from the previous quarter. In the April-June period, the economy grew 0.7%.
Tuesday's move came on the heels of easing steps taken by the BOJ in September as exports were hit by the slowing pace of growth in China and by increased tensions with Beijing over a long-running territorial dispute.
Of the ¥11 trillion in additional asset purchases by the BOJ, ¥5 trillion will be in Japanese government bonds and another ¥5 trillion in shorter-term government debt, or T-bills.
The remainder will be in risk assets, including exchange-traded funds and real-estate investment trusts.
As expected, the BOJ decided to leave its policy rate, or the unsecured overnight call loan rate, unchanged in a 0.0% to 0.1% range.
The news was a letdown to the market after comments by cabinet ministers and the announcement of the government stimulus package fueled expectations for even more aggressive steps.
While BOJ easing tends to weaken the yen, the Japanese currency rose on Tuesday's news, with the dollar falling to around ¥79.35 from ¥79.92 just before the announcement."
wsj.com
The central bank's policy board decided Tuesday to increase the BOJ's asset purchases to ¥91 trillion ($1.14 trillion) from ¥80 trillion, and to introduce a new lending facility designed to stimulate loans by banks.
The fresh measures marked the first time since May 2003 that the BOJ has taken easing steps two months in a row.
The bank said it took action to keep Japan's economic policy on the path "to sustainable growth with price stability." The BOJ also downgraded its assessment of the economy, noting declines in both exports and output, key drivers of the country's economic growth.
"Japan's economy has been weakening somewhat," it said in a statement, compared with its previous description of economic activity as "leveling off more or less.Government data earlier Tuesday showed industrial production in September posted the largest monthly drop since the March 2011 earthquake.
Output fell an unexpectedly large 4.1% from the month earlier, while exports dropped on weaker overseas economies, the central bank said.
Some BOJ watchers said heightened political pressure played a role in Tuesday's policy move, calling the joint statement a reflection of the government's attempt to strengthen its influence over the central bank.
"We see its key implication as a formal tightening of the government's grip on the central bank," Naohiko Baba, Goldman Sachs' GS -0.23% chief Japan economist and a former BOJ official, wrote in a report.
The government's move last week to compile an emergency stimulus package valued at ¥422.6 billion also was seen as adding pressure on the BOJ to move in sync to shore up the economy.
In the statement, the BOJ calls on the government to take steps to strengthen Japan's growth potential, while the government says it "strongly expects" the BOJ to continue powerful easing until deflation is overcome.
The report also says the BOJ will regularly report its outlook on prices to a ministers' meeting on deflation.
BOJ Gov. Masaaki Shirakawa said about the joint statement at a news conference: "It shows more clearly our shared understanding with the government on ending deflation." Government officials also highlighted its significance.
"Of course the independence of the BOJ is important, but a joint effort by the BOJ and the government is really needed, and it is clearly stated in the joint announcement, so this is a really important step," Vice Finance Minister Takehiko Nakao told The Wall Street Journal.
Political pressure aside, the BOJ action was anticipated, as expectations were that its fresh forecast on prices would fall short of its previously stated inflation goal.
In its semiannual outlook, decided at Tuesday's meeting, the BOJ said its nine-member board projects a 0.8% rise in the core consumer price index for the fiscal year starting April 1, 2014, below its 1% price goal introduced in February.
While the BOJ said in its outlook report that prices were likely to approach the 1% goal in fiscal 2014, Mr. Shirakawa said two board members—former private-sector economists—didn't agree with the view, indicating the bleak view even within the central bank.
A poll of 40 private economists by the Japan Center for Economic Research think tank released this month showed that on average, they expect the Japanese economy to have contracted 0.31% in the July-September quarter on an annualized basis from the previous quarter. In the April-June period, the economy grew 0.7%.
Tuesday's move came on the heels of easing steps taken by the BOJ in September as exports were hit by the slowing pace of growth in China and by increased tensions with Beijing over a long-running territorial dispute.
Of the ¥11 trillion in additional asset purchases by the BOJ, ¥5 trillion will be in Japanese government bonds and another ¥5 trillion in shorter-term government debt, or T-bills.
The remainder will be in risk assets, including exchange-traded funds and real-estate investment trusts.
As expected, the BOJ decided to leave its policy rate, or the unsecured overnight call loan rate, unchanged in a 0.0% to 0.1% range.
The news was a letdown to the market after comments by cabinet ministers and the announcement of the government stimulus package fueled expectations for even more aggressive steps.
While BOJ easing tends to weaken the yen, the Japanese currency rose on Tuesday's news, with the dollar falling to around ¥79.35 from ¥79.92 just before the announcement."
wsj.com
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