Japan’s central bank kept its benchmark rate steady and boosted its purchase of government bonds yesterday to keep ample cash in the monetary system as the country grapples with a debilitating global slowdown.
The Bank of Japan has little room left to go on standard monetary policy, such as lowering interest rates, with its benchmark interest rate already close to zero. Wrapping up a two-day meeting, the bank’s board voted unanimously to keep its key overnight call rate at 0.1 percent.
That compares with the US’ targeted range of between zero and 0.25 percent and the eurozone’s 1.5 percent.
The Bank of Japan also raised its monthly government bond purchase to ¥1.8 trillion (US$18.3 billion) from the previous ¥1.4 trillion, effective this month.
Late on Tuesday, the bank decided on an unusual move to explore a framework to provide loans to commercial banks in an effort to shore up their capital base.
That in turn is expected to encourage commercial banks to lend more freely to businesses. Fears are growing about businesses that are struggling because of tightening credit amid the deepening downturn.
“The options left for what the Bank of Japan can do are limited, and so it has decided to carry out what it can do,” said Yasuo Yamamoto, economist at Mizuho Research Institute in Tokyo.
Still, the measures are expected to achieve little direct results, although they could help boost a sense of confidence in Japan’ banks, while buying more long-term government bonds will keep interest rates down, he said.
The central bank acknowledged the capital strength of Japanese financial institutions may be hurt by the prolonged slump in the world’s second-largest economy as well as massive losses on securities.
The Tokyo stock market tumbled since the global financial crisis surfaced last year, although shares have recovered somewhat in recent sessions, partly on hopes of market-bolstering moves from the Bank of Japan.
The bank expressed deep concerns about the economy, battered by declining exports and weakening domestic demand as corporate profit drops and unemployment rises.
“Under these circumstances, economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being,” it said in a statement.
But it said it expects the Japanese economy to start recovering by the latter half of the current year, which runs through next March.
The central bank already buys commercial paper, corporate bonds and stocks from financial institutions to help shore up their balance sheets.
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