Bank of Japan Gov. 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 Monday in Nagoya. “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 the historic March calamity. Some BOJ board members said the risk to the economy has risen since last month, Shirakawa told reporters after a Nov. 16 policy meeting.
“Gov. 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. “The bank will likely act again between early next year and March by expanding its asset purchases, although it depends on currency and stock market movements.”
The yen traded around 77 or 78 per dollar in Tokyo on Monday. Authorities sold the currency on Oct. 31 after it touched a postwar high of 75.35. Shirakawa pledged Monday to continue “powerful monetary easing.”
“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 Monday.
The BOJ expanded the total size of its credit and asset-buying programs in March, August and October to ¥55 trillion. 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. “The bank is determined to support Japan’s economy as it seeks to return to a sustainable growth path, by continuing to pursue powerful monetary easing.”
Shirakawa said the BOJ has “aggressively” provided stimulus, more than other major central banks. He also said the intervention was “appropriate.”
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 on Monday, 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.
But Shirakawa said that the yen’s strength also has advantages, including lower import costs for energy and materials, and that it is important to consider how to make use of such benefits to promote the development of new businesses and reform the industrial structure.
As for the eurozone debt problem, which he called the “most significant risk factor” for Japan’s outlook, Shirakawa said European financial institutions have had difficulties raising funds and that such developments have affected many other economies.
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