Japan’s central bank rejected lawmakers’ calls to expand asset purchases for a second straight month, spurring stocks to surrender gains and prompting a gain in the yen.
Governor Masaaki Shirakawa and all but one of his colleagues on the Bank of Japan board rejected boosting asset buying after last month adding 10 trillion yen in stimulus. The bank instead unveiled a 2 trillion yen ($24 billion) increase in a program aimed at lifting Japan’s long-term growth rate, with 1 trillion yen of the credit to be in U.S. dollars.
Today’s announcement eroded an advance of as much as 1.2 percent in the Nikkei 225 Stock Average before the decision, with the yen gaining against the dollar. Last month’s stimulus kicked off a slide in the currency that reduced the potential damage to exporters’ sales and profits from the yen strengthening last year to a post World War II high.
“Today’s policy decision is a bit disappointing” to investors anticipating further expansion in liquidity, said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. who used to work at the BOJ. At the same time, Ryuzo Miyao’s vote in favor of increased asset purchases “spurs expectations that the central bank will take action further into this direction,” he said.
The yen rose 0.2 percent after the decision and was at 82.35 per dollar as of 4:51 p.m. in Tokyo. The Nikkei closed 0.1 percent higher.
Shirakawa ordered his staff to outline details for the dollar loan facility by the board’s next meeting on April 9-10. The 2 trillion yen expansion in the fund for supporting growth industries, will include 500 billion yen for “small-lot investments.”
The benchmark interest rate stays at between zero and 0.1 percent, an asset purchase fund at 30 trillion yen and a credit- loan program at 35 trillion yen. Miyao had proposed adding 5 trillion yen.
“Japan’s economy currently confronts the long-term structural challenge of declining trend growth rates amid rapid population aging,” the central bank said in a statement explaining the new growth measures.
Shirakawa told reporters in Tokyo today that the policies will help end deflation and said the steps weren’t taken in response to political pressure. All of the programs announced today will expire in March 2014.
The central bank’s moves came after lawmakers within the ruling Democratic Party of Japan urged more aggressive steps to counter deflation.
“Political pressure for additional monetary easing persists,” Masayuki Kichikawa, Tokyo-based chief economist at Merrill Lynch Japan, said before today’s announcement, citing comments from Finance Minister Jun Azumi on the need for the government and the BOJ to work together to overcome deflation.
Shirakawa is being summoned to the nation’s parliament more regularly this year to answer lawmakers’ questions — appearing 11 days as of March 12, nearly half his total number of appearances last year.
Today’s decision to leave the asset purchase and credit- loan programs unchanged was anticipated by 12 of 14 economists surveyed by Bloomberg News after the BOJ last month expanded its asset-purchase fund by 10 trillion yen.
“My understanding is that there will probably be more easing ahead if the policies don’t produce results,” Katsuyuki Ishida, a vice cabinet minister who attends monetary policy meeting as a government representative, said yesterday.
Prime Minister Yoshihiko Noda’s approval ratings have halved since he took office in September, according to poll data from public broadcaster NHK. Noda is struggling to convince lawmakers to double the sales tax to 10 percent to help contain the world’s largest public debt burden.
The yen has weakened about 5 percent since last month’s policy move and is around the level where exporters say they can remain profitable. The five-year bond yield has been as low as 0.284 percent, the least since October 2010.
The yen slid to an 11-month low against the dollar and stocks rose after the central bank expanded asset purchases and set a 1 percent price target on Feb.14, stepping up efforts to counter deflation and weaken a currency that reached a postwar high in October. Goldman Sachs Group Inc. and Nomura Securities Co. raised growth forecasts for Japan this month as capital investment increases because of reconstruction work after the earthquake and tsunami last March.
The government has compiled about 20 trillion yen for rebuilding after last year’s disaster left more than 19,000 dead or missing. The spending should start to lift the economy this quarter, said Takahide Kiuchi, chief economist at Nomura Securities Co. which raised its growth forecast to 2 percent in the year starting in April 1 from a previous 1.8 percent estimate.
Japan’s economy is showing signs of rebounding from a contraction last quarter.
Machinery orders rose a more-than-forecast 3.4 percent in January, a report showed yesterday, and industrial production and retail sales also exceeded economists’ median estimates. Toyota Motor Corp., Asia’s largest carmaker, last month raised its profit forecast.
The BOJ will hold two board meetings next month, reviewing its price and economic forecasts at the second gathering. Two board members’ terms will expire.
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