More Monetary Easing in Japan

The Bank of Japan is increasing its target for current accounts again. This is also known as monetary easing. This means effectively there is plenty of money in the banking system, the big question is whether risk averse bankers, whose own entities are not in-themselves that healthy will be willing to lend much of it. Past evidence suggests they won't, and that the effect of this change will be negligable. On the Industrial Rvitalisation Corporation, I suppose it all turns on how you define "weak, but salvageable".

The Bank of Japan on Wednesday surprised markets by easing monetary policy sharply, citing uncertainty in Japan's financial markets and the possible negative impact on the economy of the Sars crisis. The central bank said it would raise the target for current accounts held at the central bank to ¥22,000bn-¥27,000bn ($184bn-$225bn), from the previous level of ¥17,000bn-¥22,000bn. Under the bank's quantitative easing policy, begun in March 2001, the BoJ has flooded the market with enough liquidity to drive interest rates down to virtually zero. Because of "uncertainty regarding the economic and financial situation, the bank thought it appropriate to raise the target balance of current accounts held at the bank to maintain financial market stability, thereby strengthening support for economic recovery," the BoJ said in a statement. Analysts said the announcement showed that Toshihiko Fukui, who became BoJ governor in March, was willing to be more aggressive than his predecessor, Masaru Hayami. In his short time at the helm, Mr Fukui has called an unprecedented emergency meeting, raised the amount of shares the BoJ can buy from banks and initiated a scheme for the bank to buy asset-backed securities from small and medium companies.

Even so, Mamoru Yamazaki, chief economist at Barclays Capital, said the policy moves would have almost no effect on the real economy or on prices, which have been falling for seven years. He said the supply of more liquidity would, however, reassure the edgy financial markets, which have been battered by a sharply falling stock market...............The BoJ also signalled its intention to help in the workout of bad loans, which have paralysed the banks, by treating loans to the Industrial Revitalisation Corporation (IRC) as collateral in its money market operations. The IRC, which begins business next month, is due to buy up to ¥10,000bn of loans owed by weak, but salvageable, companies in an effort to get them off banks' books and clear them through the market.
Source: Financial Times
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