The Bank of Japan has taken an additional monetary easing measure, including expanding its asset-purchase fund by ¥11 trillion to a total of ¥91 trillion and keeping its key short-term interest rate at around zero to 0.1 percent. It will loan funds at an annual interest rate of 0.1 percent to financial institutions without limits.
The asset-purchase fund expansion follows a similar decision in September to increase the fund by ¥10 trillion to a total of ¥80 trillion. For the first time since April-May 2003, the BOJ has taken monetary easing steps for two consecutive months. Behind this is the central bank’s judgment that the Japanese economic recovery is on the brink of losing steam.
But the BOJ’s monetary easing step is too small to have a significant impact. It needs to take a bold step so that enterprises, investors and ordinary people will have high expectations of the Japanese economy, which is suffering not only from the slowdown of overseas economies due to the European sovereign debt crisis but also from deterioration of economic ties with China due to the territorial dispute over the Senkaku Islands.
The BOJ said exports and industrial production have dropped, casting a shadow over domestic demand. At a news conference, BOJ Gov. Masaaki Shirakawa noted that the deterioration of external demand is causing negative effects on consumer spending and capital investment, which have underpinned the Japanese economy.
As the BOJ said in announcing the monetary easing step, the economy is surrounded by many uncertainties.
The BOJ’s report, issued last Tuesday, indicated that deflationary pressure is not expected to go away soon. It predicted that the consumer price index in fiscal 2014 will rise only 0.8 percent from the previous year, a downward revision from an earlier report that mentioned the possibility of the consumer prices rising 1 percent in and after fiscal 2014.
In this situation, the government and the Diet must make every effort to help buoy the economy. It is deplorable that the Diet still cannot enact a bill to float bonds to cover some 40 percent of the fiscal 2012 budget due to political bickering.
The government’s Oct. 26 economic package of ¥422.6 billion is too small. It must compile a larger supplementary budget to stimulate the economy and the Diet must pass it.
The BOJ, the government and the Diet must get serious about pulling the economy out of deflation.