AGENCE FRANCE PRESSE
Published — Friday 21 December 2012
Last update 20 December 2012 10:45 pm
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.