BoJ expands asset-buying program by $ 119 billion

Updated 20 December 2012

BoJ expands asset-buying program by $ 119 billion

TOKYO: The Bank of Japan yesterday ramped up its offensive to power the world's third-largest economy as it faces heavy pressure from the country's incoming government to loosen monetary policy.
The move to expand an asset-buying program — its main policy tool — by 10 trillion yen ($ 119 billion) to 101 trillion yen came days after the conservative Liberal Democratic Party won a weekend election promising to boost spending and pressure the central bank for aggressive action.
The BoJ's last scheduled meeting of the year had been widely seen as a test of its resilience to outside pressure.
The soon-to-be ruling party's strongarm tactics may have played a role in the BoJ's latest easing since the government has the power to appoint senior bank officials, said Keiji Kanda, economist at Daiwa Institute of Research.
"Even though the BoJ should be independent from politics, it cannot ignore political pressure completely," he said.
"The bank is reflecting the LDP's intentions in its policies, which could be interpreted as the bank giving in to pressure from the political side."
Yesterday's decision marked the BoJ policy board's third major move since September after its counterparts in Europe and the US ushered in huge measures to battle slowing growth.
The BoJ gave few indications it was bowing to demands from the new powers in Tokyo, citing a slowing global economy and making no direct mention of a two-percent inflation target demanded by incoming Prime Minister Shinzo Abe.
The bank kept interest rates unchanged at between zero and 0.1 percent and said it would look at reviewing its inflation target.
"Overseas economies remain in a deceleration phase," said a bank statement, repeating its view the economy would remain weak "for the time being".
The BoJ "judged it appropriate to undertake further aggressive monetary easing policies", it added.
Bank chief Masaaki Shirakawa later told a Tokyo press briefing his decision to review the BoJ's inflation goals had followed earlier discussions with Abe.
"The role the government should play in monetary policy needs to be discussed at length," Shirakawa added.
But he dismissed as incorrect earlier reports — quoting Abe — which said the bank chief called Japan's next premier Thursday morning to inform him of the BoJ's policy decisions before they were publicly announced.

Abe met with Shirakawa at the LDP's headquarters earlier this week, reportedly calling on him to strike a policy deal with the government.
There has been tension between the two on policy issues, with Abe saying he wants to replace Shirakawa with a more like-minded governor when his term ends in April.
During the election campaign, the hawkish Abe criticized the bank for not doing more to stoke Japan's economy — which may have slipped into a recession in the third quarter — and advocated "unlimited" easing measures, drawing a mixed response from economists.
The BoJ's quarterly Tankan survey last week showed confidence among Japanese manufacturers has hit a near three-year low in the final months of 2012, further stoking fears about the country's prospects.
The bank in October said it would expand the asset-buying scheme by 11 trillion yen to 91 trillion yen in a bid to kickstart growth as Japan's recovery from last year's quake-tsunami disaster stuttered.
Yesterday, the BoJ also said a previously announced bank lending program would likely top 15 trillion yen in cheap loans.
However, some analysts have questioned the success of previous BoJ measures to boost an economy beset by a strong yen, tumbling demand in the key European market, and little room to grow domestic demand.
The cheap loans program "should further reduce the cost of credit, although the constraint on lending appears to be a lack of demand for credit rather than problems with the cost or availability of credit supply," Capital Economics said in a note this week.

Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018

Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.