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Shirakawa Signals BOJ Stimulus Boost as Europe Woes Deepen

Bank of Japan Governor Masaaki Shirakawa
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

Bank of Japan Governor Masaaki Shirakawa signaled the central bank’s preparedness to bolster stimulus should Europe’s deepening sovereign-debt crisis pose a larger risk to Japan’s economy and financial markets.

“In the current time of high uncertainty regarding the future prospects of overseas economies, due attention is necessary to the risk that the yen’s appreciation will dampen future growth,” Shirakawa said today in Nagoya, central Japan. “This is the very reason that the bank has embarked on monetary easing measures twice since this summer.”

It is the third time in as many weeks that the governor has spoken about the threat Europe’s debt woes pose on an economy that is recovering from a record March earthquake. Some BOJ board members said the risk to the Japanese economy has risen since last month, Shirakawa told reporters following a Nov. 16 policy meeting.

“Governor Shirakawa has stepped up his caution about the economy’s outlook because risks from Europe’s sovereign-debt problem have become more apparent,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The bank will likely act again between early next year and March by expanding its asset purchases, though it depends on currency and stock market movements.”

The yen traded at 77.63 per dollar as of 3:02 p.m. in Tokyo today. Authorities sold the currency on Oct. 31 after it touched a postwar high of 75.35. Shirakawa today pledged to continue "powerful monetary easing" and said at a press conference later than global financial markets remain under "high strain."

No Safe Haven

“There is no reason that Japan should be regarded as a safe haven,” given that it is tackling deflation and a growing debt burden, Takehiko Nakao, vice finance minister for international affairs, said at a forum in Tokyo today.

The BOJ expanded the total size of its credit and asset-buying programs in March, August and October to 55 trillion yen ($708 billion). The fund is its main policy tool since lowering the key interest rate close to zero.

“Japan’s economy is likely to continue to face a severe situation for the time being, especially with respect to exports,” the governor said.

Asked about the recent climb in government bond yields, Shirakawa declined to comment, saying that the nation’s finances were in a "very severe state" that policy makers need to improve. The yield on the benchmark 10-year security touched 1.065 percent today, the highest since Sept. 2.

‘Aggressively’ Adding Stimulus

Shirakawa said the BOJ has “aggressively” provided stimulus, more than other major central banks.

A stronger currency threatens to erode exporters’ profits and make Japanese goods less competitive overseas. While it can lower import costs, the governor also said rapid yen gains may compel companies to shift facilities overseas at a faster pace, weighing on employment at home. Speaking to corporate leaders in Nagoya today, home of companies including Toyota Motor Corp., he said he is “fully aware” of the risks of an appreciating currency.

“I’m fully aware of the possibility that the yen’s appreciation has had a significant impact on the Japanese economy overall, particularly the Nagoya region, which exports many cars,” Shirakawa said. “Regarding this issue, I don’t think there is any perception gap” between the central bank and executives, he said.

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