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Wednesday, Sept. 1, 2010

Q&A

Prognosis for BOJ action poor

Kyodo News

Following are questions and answers on the latest Bank of Japan monetary easing steps and the government's economic stimulus plan and their likely impact on the economy:

Why did the BOJ resort to further monetary easing?

The BOJ acted in response to the U.S. Federal Reserve Board's move to loosen its monetary rein, which recently pushed down the dollar against the yen to a 15-year low below 84. A strong yen erodes the competitive edge of Japanese exporters and dampens the Japanese stock market. The BOJ decided on another easing step because the economy looks set to slide further.

What are the specifics of the new BOJ step?

The central bank began offering three-month financing worth ¥20 trillion to financial institutions at a rock-bottom interest rate of 0.1 percent per annum in December. This time around it will add another ¥10 trillion in similar loans for a period of six months.

How will that affect the economy?

As a result of the BOJ's supply of ample low-interest funds to the market, market rates on government and corporate bonds are likely to go down, making it easier for businesses to borrow money and spend it on capital investment. More money could become available to consumers, boosting personal spending.

Will the BOJ's new move help arrest the yen's appreciation?

The yen has strengthened recently because investors have bought the currency, believing it a relatively safe bet compared with the dollar and euro amid the weakened U.S. and eurozone economies. In view of this, many analysts believe the BOJ's latest move won't cause the yen to depreciate immediately.

How is the government trying to revive the economy?

The priorities are job creation and consumer spending. The government will help companies take on new graduates as interns and implement other steps to make it easier for smaller firms to hire young people who have recently finished school.

It will also extend the Eco-point incentive program for the purchase of energy-efficient consumer appliances and homes beyond the December deadline.

How have the new BOJ and government plans been received?

Critics say both are insufficient. Some financial market participants argue the BOJ should buy more long-term Japanese government bonds or further lower the key target rate for unsecured overnight call money from the current 0.1 percent per year.



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