Japan’s central bank intervenes to kick start economy

Following an emergency meeting on Friday, The Bank of Japan (BOJ) has revealed they will take action to boost the flagging economy and attempt to stem rising deflation.

The BOJ have promised an injection of over $100 billion into the economy by way of budget short-term loans to the nation’s banks.

They hope by doing this that banks will be more likely to increase corporate and private lending, but financial specialists are pondering whether this may simply be an empty political move rather than a genuine effort to prop up the world’s second largest economy.

“The general feeling is that the government have been prodding the BOJ to do something,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in his monthly newsletter to clients.

“The central bank’s position on financial issues hasn’t changed recently, so they certainly wouldn’t be doing this independently,” Lane added.

In an announcement following the meeting, the BOJ said the move would “act as a counterbalance and assist the economy back to growth.”

There seems to be no end to the government’s plans to kick start Japan’s economy, with further stimulus packages being prepared, totalling around 3 trillion yen, according to BBC reports.

Ten months ago, the outgoing administration spent nearly 16 trillion yen to stimulate the economy, which successfully diverted the nation away from recession.

Another sign that the recent move was more for political drama than anything else was the meagre amount of the package. Director at Mizuho International, Seijiro Takeshita, described the amount of extra funds as “negligible” and it was all about “political timing”.

Takeshita commented that there were far better ways for the BOJ to help the economy grow such as bringing down the borrowing interest levels or purchasing high yield bonds from the government.

However, Takeshita also said the move is a sign that the government is taking the financial crisis and Japan’s own decent into recession far more seriously than before.

It was a widely held view that the country would remain largely unscathed by the global downturn, but it is clearly now feeling a part of the pain the rest of the world community has gone through in the last two years.

Exports bring Japan out of the darkness

A 6.4 percent increase in exports has dragged Japan out of its most serious recession since WW2.

It is the nation’s first quarter of economic growth for over 12 months and GDP saw an annualized rise of 3.8 percent and a 1 percent rise compared to the previous quarter.

It is the first gain in exports figures since the beginning of 2008 and the largest gain since Q2 of 2002.

The news follows encouraging signs in Europe as the two dominant economies in the financial bloc, France and Germany, reported their first positive growth in the current quarter.

Many experts thought Japan would take years to recover from a dip brought on by plummeting foreign demand for its major exports, something Japan heavily relies on for economic success and the factor that has made Japan the number two ranked economy in the world.

The cautious optimism is being mirrored in other regions.

Contraction in the United States has been the smallest for 12 months at only 1 percent annualized last quarter. A 0.1 percent contraction was Europe’s most encouraging result for a year also. China’s growth, albeit assisted by a massive stimulus package
somewhere in the region of half a trillion dollars, jumped nearly 8 percent from last year.

Although the promises of the nation’s Prime Minister, Taro Aso, that their own economy would be the first to come out of the darkness seem to have been born out, it is thought by onlookers in the know that the recent recovery won’t be enough to keep him in the job following the next general election in 2 weeks’ time.

“The Lib Dems won’t survive,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management. “Aso will be feeling good at the moment though. His stimulus package plan was mocked at the time but it has worked, and his cash hand outs and the incentives for green energy have provided the economy with many short term boosts. He is to be commended.”

Not everyone has such a positive outlook. The modest export-focused growth is great news, but the yearlong contraction that translated to over a 13 percent dip in annualized GDP in the last quarter of the year was a huge blow to the nation’s prospects.

The economic and fiscal policy minister, Yoshimasa Hayashi warned that a sustained recovery was not certain. “Employment figures are still poor and our production levels are in a trough,” he said. “We will need to work very hard to keep this recovery going and must be aware of the negative risks.”