April 30 2010 Bank of Japan eyes change of policy
The Bank of Japan on Friday promised ”new efforts” to support economic growth but it is unlikely to make the big changes to monetary policy demanded by its critics in Japan’s ruling party.
The bank forecast an end to deflation next year, predicting that prices will rise by 0.1 per cent in the year that starts April 2011, and sharply increased its median growth forecast for this year from 1.3 to 1.8 per cent.
The raised forecasts suggest that the central bank is increasingly confident about the strength of Japan’s recovery. The unusual promise of new policy measures suggests that the central bank is concerned about political pressure ahead of upper house elections due in July and wants to show its willingness to act to end deflation.
The new measures are likely to be aimed at helping banks to lend more to companies rather than easing overall monetary policy. Bank governor Masaaki Shirakawa said that one model is a 1990s lending programme under which banks that increased their lending could refinance part of the increase with the central bank.
The central bank would like to find ways to encourage banks to lend to early-stage and venture companies, which struggle to raise finance in Japan. It does not intend to take any credit risk itself.
By working on structural changes to boost growth rather than loosening monetary policy, the bank is sending a pointed message to the government. Schemes to support company finances are normally run by finance ministries rather than by central banks.
Some politicians in the ruling Democratic Party of Japan are pushing to include an inflation target for the central bank in their manifesto for upper house elections due in July. The bank is opposed to an inflation target and does not support the use of radical monetary policy to counter deflation. Instead, Mr Shirakawa has argued that Japan needs structural reforms in order to raise the economic growth rate.
The bank kept its overnight rate on hold at 0.1 per cent. It said that Japan’s economy “continued to pick up” and that “the pace of increase in private consumption and housing investment is likely to accelerate” as increased corporate activity improves the employment situation.
In March data released on Friday, the headline and the so-called ‘core-core’ consumer price index, which excludes food and energy, both fell by 1.1 per cent on the previous year.
Preliminary numbers for the Tokyo area in April showed an even greater headline fall of 1.5 per cent as the abolition of tuition fees at public high schools took effect.
The Bank of Japan says it will ignore the tuition fee change because the effect on prices will be one-off, but the apparent increase in deflation may affect consumer expectations.
Other data released on Friday was mixed. Industrial production rose by a seasonally adjusted 0.3 per cent on the previous month in March. Manufacturers forecast a further 3.7 per cent rise in April.
But the seasonally adjusted unemployment rate rose by 0.1 per cent to 5 per cent in March suggesting that recovery in the labour market remains sluggish.
The Bank of Japan on Friday promised ”new efforts” to support economic growth but it is unlikely to make the big changes to monetary policy demanded by its critics in Japan’s ruling party.
The bank forecast an end to deflation next year, predicting that prices will rise by 0.1 per cent in the year that starts April 2011, and sharply increased its median growth forecast for this year from 1.3 to 1.8 per cent.
The raised forecasts suggest that the central bank is increasingly confident about the strength of Japan’s recovery. The unusual promise of new policy measures suggests that the central bank is concerned about political pressure ahead of upper house elections due in July and wants to show its willingness to act to end deflation.
The new measures are likely to be aimed at helping banks to lend more to companies rather than easing overall monetary policy. Bank governor Masaaki Shirakawa said that one model is a 1990s lending programme under which banks that increased their lending could refinance part of the increase with the central bank.
The central bank would like to find ways to encourage banks to lend to early-stage and venture companies, which struggle to raise finance in Japan. It does not intend to take any credit risk itself.
By working on structural changes to boost growth rather than loosening monetary policy, the bank is sending a pointed message to the government. Schemes to support company finances are normally run by finance ministries rather than by central banks.
Some politicians in the ruling Democratic Party of Japan are pushing to include an inflation target for the central bank in their manifesto for upper house elections due in July. The bank is opposed to an inflation target and does not support the use of radical monetary policy to counter deflation. Instead, Mr Shirakawa has argued that Japan needs structural reforms in order to raise the economic growth rate.
The bank kept its overnight rate on hold at 0.1 per cent. It said that Japan’s economy “continued to pick up” and that “the pace of increase in private consumption and housing investment is likely to accelerate” as increased corporate activity improves the employment situation.
In March data released on Friday, the headline and the so-called ‘core-core’ consumer price index, which excludes food and energy, both fell by 1.1 per cent on the previous year.
Preliminary numbers for the Tokyo area in April showed an even greater headline fall of 1.5 per cent as the abolition of tuition fees at public high schools took effect.
The Bank of Japan says it will ignore the tuition fee change because the effect on prices will be one-off, but the apparent increase in deflation may affect consumer expectations.
Other data released on Friday was mixed. Industrial production rose by a seasonally adjusted 0.3 per cent on the previous month in March. Manufacturers forecast a further 3.7 per cent rise in April.
But the seasonally adjusted unemployment rate rose by 0.1 per cent to 5 per cent in March suggesting that recovery in the labour market remains sluggish.
AP
