14 August 2001, 10:02 BoJ may have to ease again soon, impact purely psychological - SG
TOKYO (AFX-ASIA) - Societe Generale senior economist Shuji Shirota
said the Bank of Japan may be forced to ease rates again over the
coming months as economic conditions deteriorate.
The impact of the bank's latest move to help the economy will be
limited, he added.
The BoJ said this afternoon that it decided to increase the
outstanding balance of current accounts held at the central bank to
around 6 trln yen from 5 trln previously.
The bank added that it will also increase its outright purchases of
long-term government bonds to 600 bln yen per month from 400 bln
currently "in order to smoothly provide liquidity under the new
guideline".
The decision was made by majority vote.
The bank said it is encouraged by recent government reform moves,
adding: "A series of monetary easing measures, including today's
decision, are consistent with providing maximum support for such reform
efforts in various areas."
SG's Shirota said the market had been caught somewhat flat-footed
by the central bank's move.
"It's a surprise indeed, though we assumed sooner or later the BoJ
would take some steps," Shirota said, adding that the impact of the
move will be through the financial markets rather than the real
economy.
"The impact on the real economy should be minimal," he said. "The
BoJ has already given up interest rates as a policy tool. The policy
has been more psychological than real."
However, given the limited reaction in the markets so far today,
the central bank may have to take more drastic action over coming
months.
"The yen eased to 123 (against the dollar) but it's coming back and
the 10 year JGB has come back above 1.3 pct. The impact is very
limited," Shirota said.
"In September we are going to see another correction in second
quarter GDP and we are not yet past the mid-September fiscal half. The
BoJ may be forced to act again," he said.
"The BoJ could extend today's decision to raise the current account
and boost JGB purchases but they have some other options such as buying
corporate bonds or inflation targets, although I don't think this is a
strong possibility."
© 1999-2024 Forex EuroClub
All rights reserved