Disaster agency eyed to oversee recovery

BOJ pumps record liquidity into lenders

by Takashi Hirokawa and Keiko Ujikane

Bloomberg

A reconstruction agency may be created to oversee disaster 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 the government will weigh “some sort of system or organization” to oversee postquake spending, adding that it’s too early to say when a spending bill will be compiled. The Bank of Japan said lenders’ deposits with the central bank Tuesday more than doubled since March 11, to ¥41.62 trillion.

Policymakers are girding for a drop in gross domestic product as deep as an annualized 12 percent in the second quarter, according to Morgan Stanley MUFG Securities Co.

“The impact of the (earthquake-triggered disaster) 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. “So there’s a good chance the economy will shrink a bit in the first quarter.”

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.

Future assessments will need to address damage to much of the Tohoku region economy, and the disruptions to electricity and distribution systems that have spread to Tokyo and beyond.

“It is necessary to set up a full-scale administrative 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.

In the meantime, the BOJ will take appropriate action if needed, Gov. Masaaki Shirakawa told lawmakers in the Diet on Tuesday, amid forecasts that the central bank will further enlarge its asset-purchase program. He also reiterated his warning against the central bank directly buying government bonds from the Finance Ministry.

“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 the Diet that the government needed to be “cautious” in considering whether to have the BOJ make direct purchases.

Fiscal spending won’t be the only channel for stimulus, according to Chotaro Morita, chief strategist at Barclays Capital Japan Ltd.

“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 Tuesday.