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.
