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Bank of Japan Resists Strong Medicine for Stimulus Bank of Japan Resists Strong Medicine for Stimulus
(about 1 hour later)
TOKYO — As Japan’s economy limped into the second half of the year, some analysts hoped that the central bank would take radical steps at its policy meeting on Friday. It could move its benchmark interest rate further below zero. It could metaphorically drop money from a helicopter into the arms of Japanese consumers. TOKYO — As Japan’s economy limped into the second half of the year, some analysts hoped that the central bank would take new, radical steps. It could move its benchmark interest rate further below zero. It could drop cash directly into the arms of Japanese consumers — so-called helicopter money.
Instead, the central bank chose to keep things at a decidedly lower altitude, at least for now. Instead, the Bank of Japan chose to keep things at a decidedly lower altitude, at least for now.
The Bank of Japan, the central bank, announced a small expansion of its deflation-fighting stimulus policies, with changes that ranked at the most cautious end of what analysts and investors had been expecting. The central bank said after its policy meeting on Friday that it would only slightly expand deflation-fighting stimulus, with changes that ranked at the cautious end of what analysts and investors had been expecting.
But in an implicit admission that policies to date had failed to defeat the debilitating wage and price stagnation afflicting the Japanese economy — the world’s third largest, after the United States and China — the bank said it planned to carry out a “comprehensive assessment” of its approach. But it also said it would carry out a “comprehensive assessment” of its approach, a tacit admission that it had so far been unable to defeat the debilitating wage and price stagnation afflicting the Japanese economy.
The review, which it said would be delivered at its next policy meeting, in September, is likely to keep economists and markets speculating about whether the bank might yet try more drastic measures to get the economy rolling. But the bank’s governor, Haruhiko Kuroda, said that he thought there remained more conventional policy levers to pull. That review, which will be delivered at its next meeting, in September, is likely to stir speculation about whether the bank will try more drastic maneuvers to get the economy rolling.
“I don’t believe we’re approaching the limits of negative interest rates or qualitative and quantitate easing,” Mr. Kuroda said, referring in part to the bank’s bond-buying program. “We’ve been pursing an aggressive monetary policy for three years, and its a natural time for a review.” The more extreme options include helicopter money, a catchall term for dumping funds straight into the economy by giving it to consumers or printing new money to finance more government spending. Central bankers generally see this as dangerous, but some specialists say Japan may be running out of options.
There are few weapons in the normal central banking arsenal that the bank has not tried. The central bank “clearly disappointed the market today,” said Michael Moen, a bond manager at Aberdeen Asset Management.
Its benchmark interest rate is already below zero, a historically unusual phenomenon. It is buying up government bonds at a rate of 80 trillion yen, or $770 billion, a year to keep financial institutions flush with lendable cash. Even so, consumer prices still were down 0.4 percent in June from a year earlier and the economy has bounced between periods of growth and contraction. “Reading between the lines, the bank appears to be acknowledging the limits of its policy tools, and the focus going forward will need to be on a combination of fiscal and monetary stimulus,” he said.
Mr. Kuroda said that the bank could push interest rates further into negative territory, noting that they are more steeply negative in some countries in Europe. There are few weapons in the normal central banking arsenal that the bank has not tried. Its benchmark interest rate is already set below zero, a move intended to try to force companies to invest money rather than hoard it. It is buying government bonds at a rate of 80 trillion yen, or $770 billion, a year to keep banks flush with cash to lend.
Yet on Friday, the bank left its policy rate unchanged at minus 0.1 percent and said it would continue purchasing the same amount of government debt. And the central bank came nowhere close to introducing so-called helicopter money, a catchall term for dumping cash straight into the economy by giving it to consumers or directly financing government spending. Even so, consumer prices were down 0.5 percent in June from a year earlier, and the economy has bounced between periods of growth and contraction.
Instead, it announced that it would increase the scale of a buying program for exchange-traded equity funds from ¥3.3 trillion a year to ¥6 trillion a year and double the size of a dollar-denominated lending program aimed at Japanese companies operating overseas to $12 billion. Since Prime Minister Shinzo Abe came to power at the end of 2012 on a promise to rekindle economic growth, his government has often seemed to leave much of the work to the central bank. Japan has the heaviest public debt load in the world, and Mr. Abe’s administration is officially committed to reducing the deficit, so letting the central bank spend instead of the government is less contentious.
The government of Prime Minister Shinzo Abe is putting together a package of spending measures that Mr. Abe said this week would most likely be worth ¥28 trillion, or about $270 billion. Details are expected to be announced next week. That, combined with a recent visit to Tokyo by Ben S. Bernanke, the former Federal Reserve chairman, had convinced some analysts and investors that the Bank of Japan might start to print money to pay for the spending. But as his country’s economy has struggled to grow at a meaningful pace, Mr. Abe has become less restrained. In June he postponed an increase in the national sales tax, and his government is going to put in place spending measures that Mr. Abe said this week would probably be worth ¥28 trillion. Details are expected to be announced next week.
The yen briefly jumped almost 3 percent against the dollar after the central bank announced its policy on Friday and was up 1.6 percent late in the Asian trading day. A stronger yen is damaging to many Japanese companies, which would receive less in exchange for their exports. Traders previously sold the currency in anticipation that a radical expansion in stimulus would weaken it. This more aggressive attitude, combined with a recent visit to Tokyo by Ben S. Bernanke, the former Federal Reserve chairman, had convinced some analysts and investors that the Bank of Japan might start to simply print money to pay for the spending.
Mr. Kuroda said he was against directly financing government spending with newly created money, a practice that has led to out-of-control inflation in some countries. But he suggested he was open to more nuanced cooperation between the government and the central bank. Katsunori Kitakura, a strategist at Sumi Trust, a Japanese asset manager, said he believed the Bank of Japan was essentially buying time with its small move on Friday and would take more decisive action once it assessed the government’s spending plans.
“Only once the government has outlined its fiscal spending measures do we expect the central bank to make a move,” Mr. Kitakura said.
The yen briefly jumped almost 3 percent against the dollar after the central bank announced its policy on Friday and was up 1.6 percent late in the Asian trading day. A stronger yen is damaging to many Japanese companies, which would receive less in exchange for their exports. Traders had sold the currency in anticipation that more stimulus spending would weaken it.
Yet on Friday, the bank left its policy rate unchanged at minus 0.1 percent and said it would continue buying the same amount of government debt. And the central bank came nowhere close to introducing helicopter money.
Instead, it announced that it would increase the scale of a program to buy exchange-traded stock funds to ¥6 trillion a year from ¥3.3 trillion, and it doubled the size of a dollar-denominated lending program aimed at Japanese companies operating overseas to $12 billion.
The bank’s governor, Haruhiko Kuroda, said he thought there were still more conventional policy levers left to pull.
“I don’t believe we’re approaching the limits of negative interest rates or qualitative and quantitate easing,” Mr. Kuroda said, referring in part to the bank’s bond-buying program. “We’ve been pursuing an aggressive monetary policy for three years, and it’s a natural time for a review.”
Mr. Kuroda added that the bank could push interest rates further into negative territory, noting that they are even further below zero in some countries in Europe.
He said he was against directly financing government spending with newly created money, a practice that has led to out-of-control inflation in some countries. But he suggested he was open to more nuanced cooperation between the government and the central bank.
“The right policy mix can produce synergies between fiscal and monetary policy,” he said, “but what we’re doing is totally different from simply monetizing government debt.”“The right policy mix can produce synergies between fiscal and monetary policy,” he said, “but what we’re doing is totally different from simply monetizing government debt.”