Japan Weighs Postwar-Style Reconstruction Agency, Injects Cash
Japan Weighs Postwar-Style Reconstruction Agency
Tomohiro Ohsumi/Bloomberg
The Bank of Japan said yesterday lenders’ deposits with the central bank more than doubled since March 11, to 41.62 trillion yen ($513 billion).
The Bank of Japan said yesterday lenders’ deposits with the central bank more than doubled since March 11, to 41.62 trillion yen ($513 billion). Photographer: Tomohiro Ohsumi/Bloomberg
March 22 (Bloomberg) -- Eric Brock, portfolio manager at Clough Capital Partners, talks about the outlook for investments in Asia following the March 11 earthquake and tsunami in Japan. Brock speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
Japan may set up a reconstruction agency to oversee earthquake repairs, while data showed the central bank pumped record liquidity into lenders, as the nation grappled with its worst disaster since World War II.
Chief Cabinet Secretary Yukio Edano told reporters in Tokyo the government will weigh “some sort of system or organization” to oversee post-quake spending, adding that it’s too early to say when a spending bill will be compiled. The Bank of Japan said yesterday lenders’ deposits with the central bank more than doubled since March 11, to 41.62 trillion yen ($515 billion).
Policy makers are girding for a drop in gross domestic product that as deep as an annualized 12 percent in the second quarter, according to Morgan Stanley MUFG Securities Co. The government, which releases its first monthly economic assessment since the March 11 earthquake today, estimates the damage at as much as 25 trillion yen, the Nikkei newspaper reported.
“The impact of the earthquake will hit the economy in late March, but consumer spending wasn’t that good in January and February to begin with,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “So there’s good chance that the economy will shrink a bit in the first quarter.”
The Cabinet Office raised its assessment of the economy last month, saying the nation was “emerging from a recent pause in activity,” supported by increasing exports and industrial output. The Bank of Japan last week said that while the economy was coming out of a deceleration, production may drop and corporate and household sentiment may worsen after the disaster.
Suspended Factories
Future assessments will need to address damage to much of the northeast’s economy, and the disruptions to electricity and distribution systems that’s spread south to Tokyo and beyond. Toyota Motor Corp. said yesterday it will halt car assembly in Japan through March 26. Sony Corp. (6758) said it shut five more plants.
The death toll following the disaster rose to 9,099 as of last night, according to the National Police Agency. Workers were still struggling to gain control of the crippled nuclear power plant 220 kilometers (137 miles) north of Tokyo.
“It is necessary to set up a full-scale administration agency within the Cabinet to plan for basic reconstruction just as the Economic Stabilization Board was set up after the war,” ruling-party lawmakers including Kouki Kobayashi, Yukio Ubukata and Jin Matsubara said in a statement.
Worse Than Kobe
Damage from the magnitude-9 quake and tsunami may linger longer than the aftermath of the 1995 Kobe earthquake, Bank of Japan board member Ryuzo Miyao said in a speech today.
Japanese stocks fell for the first time in three days today after a series of earthquakes struck near the Fukushima nuclear plant, which was crippled after the quake and tsunami. The Nikkei 225 Stock Average declined 1.6 percent to 9,455.06 at the lunchtime break in Tokyo. The yen was little changed at 80.91 per dollar, in the wake of the coordinated sales on March 18 by the Group of Seven that sent the currency tumbling that day.
Finance Minister Yoshihiko Noda told reporters yesterday the G-7 will monitor market developments. European Central Bank Executive Board member Juergen Stark said in a March 18 interview with the Nikkei newspaper the group stood ready for further steps if needed at Japan’s request.
Meantime, the BOJ will take appropriate action if needed, Governor Masaaki Shirakawa told lawmakers at an appearance yesterday in the Diet, amid forecasts that the central bank will further enlarge its asset-purchase program. He also reiterated his warning against the central bank directly buying Japanese government bonds from the finance ministry.
Underwriting Bonds
“If a central bank starts to underwrite government bonds, there may be no problems at first, but it would lead to a limitless expansion of currency issuance, spur sharp inflation and yield a big blow to people’s lives and economic activities,” as has happened in the past, Shirakawa said.
By law, the central bank can directly buy JGBs only in extraordinary circumstances with the permission of the Diet. Vice Finance Minister Fumihiko Igarashi said in parliament that the government needed to be “cautious” in considering whether to have the BOJ make direct purchases.
Bond sales, cuts to other spending and tax measures could pay for reconstruction, Economic and Fiscal Policy Minister Kaoru Yosano said yesterday. Morgan Stanley MUFG Securities Co. analysts led by Robert Feldman in Tokyo wrote in a note this week that policy makers will likely implement “several” spending packages of 10 trillion yen or more.
Loan Programs
Fiscal spending won’t be the only channel for stimulus, according to Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. in Tokyo.
“We expect the utilization of government lending” vehicles such as the Government Housing Loan Corporation and Finance Corporation for Municipal Governments, as was done in the wake of the 1995 Kobe earthquake, Morita wrote in a report to clients yesterday. This would help reduce the increase in government-bond issuance, he said.
In the wake of the devastation of World War II, Japan’s government set up the Economic Stabilization Board in August 1946. Among its duties was to ration commodities and oversee the revival of the nation’s industries.
To maintain short-term financial stability, BOJ policy makers have added emergency cash every business day since the quake. Lenders’ current-account balances at the central bank yesterday exceeded the 36.4 trillion yen record set in March 2004, when officials were implementing so-called quantitative easing measures to counter deflation. Deposits have climbed from about 17.6 trillion yen on March 10.
To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net
To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; Paul Panckhurst at ppanckhurst@bloomberg.net
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