BOJ Holds Emergency Meeting as Surging Yen Threatens Growth

The Bank of Japan held an emergency board meeting today as the yen’s surge to a 15-year high forces policy makers to find ways to support the nation’s slowing expansion.

Governor Masaaki Shirakawa and his board were scheduled to gather at 9 a.m. “to discuss monetary control matters based on recent economic and financial developments,” according to a central bank statement. Shirakawa returned yesterday to Tokyo, cutting short a U.S. trip by one day after Prime Minister Naoto Kan said he expected the bank to implement policy “swiftly.”

The yen slipped and stocks rose after the announcement backed speculation the BOJ will step up injections of liquidity to sustain the recovery. The bank’s meeting follows signs that its U.S. counterpart is also open to further monetary stimulus, with Federal Reserve Chairman Ben S. Bernanke saying three days ago that he has the tools to prevent another recession.

“The BOJ’s first choice will be to expand its credit program to lenders,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “It’s hard to say whether such measures will halt the yen’s gains and stock declines because markets have been shaken by the U.S.’s outlook.”

The central bank will probably expand its 20-trillion yen ($234 billion) bank-loan program and extend the term for the credit from three months, Nishioka said.

Temporary Impact

“BOJ monetary policy alone will only stop the yen’s advance temporarily,” said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo, said before today’s announcement. Iwashita also forecasts the central bank will bolster the lending facility.

Japan’s currency was at 85.75 per dollar at 10:26 a.m. in Tokyo; currency movements may be exaggerated today by the U.K. holiday closure of London, the world’s biggest market for foreign-exchange trading. The yen’s 10 percent gain against the dollar this year threatens to erode profits of exporters from Toyota Motor Corp. to Sony Corp. The Nikkei 225 Stock Average jumped 3 percent to 9,257.87.

Shirakawa will speak to reporters about the decision at 2:30 p.m. in Tokyo today, the central bank said.

Kan is forecast to unveil his first stimulus package tomorrow. The prime minister has been meeting with his ministers to discuss the economy, while stopping short of outlining any specific measures to prop up the expansion. Growth has been supported by incentives to buy cars and electronics, with most of those measurers due to expire this year.

Deflation Persists

Government reports released Aug. 27 showed deflation persisted in July while the labor market improved. Consumer prices excluding fresh food slid 1.1 percent from a year earlier, the 17th straight drop. The unemployment rate fell to 5.2 percent, the first decline in six months.

The Ministry of Finance, which is responsible for currency policy, hasn’t ordered an intervention in the foreign-exchange market to weaken the yen since 2004.

Lawmakers from Kan’s ruling Democratic Party of Japan have called on the central bank to do more, saying last week the bank should “speedily take further steps” to support the economy.

Shirakawa hasn’t spoken publicly about the yen since the last policy meeting. He said on Aug. 10 that policy makers were “well aware” that a strong yen would dampen corporate confidence and hurt economic growth. He also indicated Japanese companies have become resilient to the yen’s gains compared with late last year when the yen was surging.

“The BOJ has probably been reluctant to take further easing measures before finding clear evidence of economic deterioration,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “The bank is being forced to make a painful choice.”

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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