Japan's Central Bank Pumps Record Amount of Cash Into System Since Quake

Japan’s central bank pumped a record amount of funds into the financial system since March 11 to calm markets and soften the economic impact of the earthquake and tsunami.

Lenders’ deposits with the central bank will jump an estimated 146 percent to an all-time high of 43.6 trillion yen ($539 billion) today, from 17.7 trillion yen the day before the temblor struck, the Bank of Japan said in a release in Tokyo.

Policy makers have added emergency cash every business day as they battle Japan’s worst postwar disaster, backed by the Group of Seven nations’ coordinated intervention to weaken the yen. Liquidity exceeded the 36.4 trillion yen record set in March 2004, when the central bank was implementing so-called quantitative easing measures to counter deflation.

“The BOJ is firmly sticking to its promise of pumping a massive amount of cash into the banking system,” said Toshiaki Terada, a researcher at Totan Research Co., a money-market brokerage in Tokyo. “Even though Japan’s money market is already flooded with cash, there is still the risk that cash demand from lenders will suddenly surge.”

Stocks Rally

Japanese stocks rose today, with the Nikkei 225 (NKY) Stock Average marking its biggest two-day advance since April 2009, as the country made progress in stabilizing reactors at a nuclear plant crippled by this month’s disaster. The benchmark gained 4.4 percent to close at 9,608.32 in Tokyo, paring its loss since the magnitude-9 temblor struck to 7.9 percent.

“The central bank is trying to prevent any business failures that could be caused by a shortage of cash,” said Hiroshi Watanabe, an economist at the Daiwa Institute of Research in Tokyo. He said cash hoarding by companies and individuals after the crisis could leave insufficient liquidity in the market, unless the BOJ pours in extra funds as it’s doing.

The Japanese government will release a monthly economic report tomorrow, in its first official assessment of the impact of the disaster, according to the Cabinet Office. Japan’s annualized growth will trough at 0.4 percent in the second quarter, the median forecasts of nine economists surveyed by Bloomberg News show.

Prime Minister Naoto Kan said yesterday he can see “light at the end of the tunnel,” even as smoke hampered efforts to restore cooling systems at the troubled Fukushima Dai-Ichi nuclear plant.

Emergency measures to steer Japan’s economy through the crisis have included coordinated intervention by the Group of Seven nations to weaken the yen, aiding the nation’s exporters. The currency was little changed today at 80.90 per dollar.

To contact the reporter on this story: Saburo Funabiki in Tokyo at sfunabiki@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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