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BOJ Confident Markets to Calm Even as Japan Stocks Plunge

June 13 (Bloomberg) -- Bank of Japan Governor Haruhiko Kuroda and board member Sayuri Shirai signaled confidence that Japanese markets would recover even as stocks plunged.

“Japan’s real economy is steadily tracing a recovery path and the financial markets will settle as they reflect such positive moves in the economy,” Kuroda told reporters today in Tokyo. Board member Sayuri Shirai echoed those comments, telling reporters that markets will calm and the central bank’s easing will provide a support for stock prices.

The Nikkei 225 Stock Average entered a bear market as it slid more than 20 percent from a May 22 high, underscoring the risk that investors and the public will lose confidence in efforts by Prime Minister Shinzo Abe and the BOJ to revive the world’s third-biggest economy. Abe and Kuroda are trying to sustain momentum after 4.1 percent annual growth in the first quarter, the fastest pace in a year.

Japan’s markets will “continue to struggle” until investors see evidence that economic reforms are being implemented, said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “After the euphoria earlier this year, with easier money lifting all asset prices, calmer heads prevailed and investors are looking for hard evidence as to whether the government will follow through on structural reforms.”

“On whether stocks rose too high, the levels of share prices weren’t too high from a historic point of view,” Shirai said at a press conference in Hokkaido, northern Japan. “While they are currently undergoing corrections, the trend of rising stocks and a weakening yen is bringing positive impacts to the economy,” she said earlier in a speech.

Falling Stocks

The yen touched a two-month high of 93.79 per dollar today, trading at 94.05 as of 4:17 p.m. in Tokyo. The Nikkei closed down 6.4 percent with the broader Topix index 4.8 percent lower.

An April forecast for inflation may prove too optimistic, Shirai said in the speech. Price in the year through March 2015 “could be lower than projected by the bank,” Shirai said, citing the danger that a sales-tax increase may encourage companies to limit price increases driven by other causes.

The BOJ estimate, the median of board members’ forecasts, is for a 1.4 percent gain in the benchmark gauge, excluding the sales tax. On the price forecast, “the risks are tilted somewhat to the downside,” she said.

The central bank this week restated its April pledge to increase the monetary base by 60 trillion to 70 trillion yen ($744 billion) per year, and refrained from adding extra policy tools to counter bond-market volatility.

Japan’s benchmark inflation gauge excludes fresh food. In April, the measure fell 0.4 percent from a year earlier, the sixth straight decline.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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