BOJ Is `Too Little, Too Late' in Tackling Yen, Nakahara Says
The Bank of Japan’s decision to expand a bank-loan program was “too little and too late” as a means of halting the yen’s advance, said former central bank policy board member Nobuyuki Nakahara.
The BOJ will boost the amount of funds in its lending facility by 10 trillion yen ($118 billion) to a total of 30 trillion yen, it said yesterday after an emergency meeting. The central bank is ready to take more action if necessary, Governor Masaaki Shirakawa said at a press briefing, citing risks to his view the economy will extend its recovery.
“The announced measures were meaningless and can’t stop the yen’s advance,” Nakahara, who served as a policy board member between 1998 and 2002 under then Governor Masaru Hayami, said after the central bank’s meeting. “The action therefore was too little and too late.”
The BOJ is expanding the bank-loan program it set up in December in response to the yen’s surge in November to what was then the highest level since 1995. That mark was breached this month, with the yen reaching 83.60 per dollar on Aug. 24.
Japan’s currency traded at 84.39 as of 12:08 p.m. in Tokyo, after dropping as low as 85.91 yesterday before the BOJ announced its decision. The Nikkei 225 Stock Average fell 2.6 percent today to 8,912.33, approaching this year’s low of 8,807.41 reached on Aug. 25.
Japan can’t achieve stable and sustained economic growth until exporters get back on their feet, Nakahara said.
“Unless the BOJ lowers the policy rate to zero, interest- rate differentials between Japan and the U.S. will continue to narrow and weigh on the dollar-yen rate,” said Nakahara, 75, who runs a research and consulting firm called Nakahara & Co. “Lowering the policy rate to zero is a must to stem the yen’s gains.”
The central bank kept its overnight lending rate at 0.1 percent yesterday, and left its monthly government bond purchases at 1.8 trillion yen. The BOJ also refrained from making any specific reference to intervention in the currency market to halt the yen’s gains.
“The BOJ should also boost outright purchases of bonds by another 500 billion yen,” Nakahara said. “Increased bond purchases would enable the government to generate funds for more public works spending.”
“As a whole, Japan can’t live without spending by companies and the government,” he said.
Shirakawa told reporters the bank won’t rule out any policy actions. He said the bank’s 1.8 trillion yen a month of debt purchases are appropriate and the central bank needs to consider the adverse effects of lowering the benchmark rate.
Japanese politicians praised the central bank’s move yesterday, with Vice Finance Minister Motohisa Ikeda saying he welcomed the bank’s “swift response.”
“The government plans to work with the central bank to deal with the severe conditions we are facing now,” Chief Cabinet Secretary Yoshito Sengoku said at a press conference. “We want the bank to continue implementing policy appropriately and flexibly while maintaining close contact with the government.”
‘Soothe the Anger’
Pleasing the government may have been the BOJ’s aim, said Mitsuru Saito, chief economist at Tokai Tokyo Securities Co.
“The announced measures can only serve as tranquilizer to soothe the anger among politicians,” Tokyo-based Saito said. “As a means of stimulating growth or halting the yen’s rise, they were nothing.”
Nakahara said legislation should be revised to give the government more control over the Bank of Japan to check its power and performance.
“If the BOJ stubbornly keeps saying that it can’t do anything in helping to achieve growth, we don’t need such a central bank any longer, and should just turn over its power and functions to the government or to megabanks,” Nakahara said.
Japanese consumer prices fell for a 17th month in July and household spending rose less than forecast, reports showed last week. Prices excluding fresh food declined 1.1 percent from a year earlier. Household spending rose 1.1 percent, lower than the median estimate of economists in a Bloomberg News survey for a 1.5 percent gain.
At the same time, the unemployment rate fell for the first time in six months, to 5.2 percent.
Gross domestic product growth slowed to an annual rate of 0.4 percent in the second quarter, from 4.4 percent in the prior three months. The figures, released earlier this month, showed China’s economy surpassed Japan’s as the world’s second biggest, behind the U.S., for the quarter. ? Nakahara opposed the BOJ’s decision to end its zero rate policy in August 2000, saying global economic growth was peaking.
The central bank was compelled to cut its benchmark rate back to zero and adopt quantitative easing seven months later after the collapse of the information technology-led economic boom. The government, which opposed the rate increase, blamed the BOJ and put pressure on it to help boost the stalled economy.
The BOJ raised its key rate to 0.5 percent in 2007 before lowering it to the current 0.1 percent last December during the global financial crisis. Nakahara had urged the BOJ to re- introduce quantitative easing before the central bank did so.
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