Bank of Japan resists pressure to ease amid recession worries

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UPDATE 1-BOJ resists pressure to ease amid recession worries

Friday July 13, 1:34 AM EDT

By Yonggi Kang

TOKYO, July 13 (Reuters) - The Bank of Japan decided to leave its monetary policy unchanged on Friday as widely expected, dodging pressure from the government to do more to prevent Japan's flagging economy from sinking further.

Shortly after the BOJ's unanimous decision, data showed bankruptcy cases rose by 1.3 percent in the first six months of the year, underscoring the daunting task Prime Minister Junichiro Koizumi faces as his structural reform policy is expected to further increase corporate failures and joblessness.

Economists said the central bank, which has already nudged short-term interest rates close to zero after its unprecedented easing measures in March, would likely have to ease credit again soon, but was probably waiting to gauge progress in Koizumi's reform programmes.

"The BOJ thinks it has already stepped ahead of the curve when it eased in March," said Sei Matsuda, economist at Kokusai Securities. "They haven't said that's going to be it, but given that Koizumi's reforms haven't really gotten underway yet, they probably don't see the need to ease further right now."

A victory for Koizumi's ruling coalition in the Upper House elections on July 29 will likely allow him to step up the pace of reforms, such as making banks write off bad loans more aggressively, and that might make Japanese financial markets shakier and force the BOJ to step in, Matsuda added.

"I would expect a heated debate in September," he said.

The BOJ next meets on August 13-14 and then on September 18-19. The latter meeting will be particularly crucial because of concerns about stock prices at the half-year book-closing on September 30, for which a mark-to-market accounting will be introduced, exposing banks' balance sheets to market volatility.

STEADY COURSE

Still, political pressure has already mounted on the central bank to share the burden of lifting the world's second-largest economy, which is teetering on the brink of recession.

Economics Minister Heizo Takenaka, who attended the BOJ's meeting on Friday, said he urged the central bankers to be flexible on monetary policy.

"The BOJ should maintain a flexible quantitative easing stance as deflationary pressures remain," he told a news conference.

Under the so-called quantitative easing framework introduced in March, the BOJ injects as much liquidity in the money market as needed to keep financial institutions' current account deposits at the central bank at five trillion yen ($40.32 billion).

Analysts have said that if it were to ease further, the BOJ could either raise the current account deposit target or increase its outright purchases of government bonds from the market.

But BOJ officials, including Governor Masaru Hayami, has said that monetary conditions were already accommodative and their impact on economic growth is constrained by banks' bad-loan problem and other structural economic issues which it said the government must resolve.

©2001 Reuters Limited.

-- (M@rket.trends), July 13, 2001

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ECB deals fresh blow to rate hopes

LINGERING hopes of an imminent cut in euro-zone interest rates evaporated today as the European Central Bank said the current level was appropriate. 'The stance of the monetary policy of the ECB should ensure price stability over the medium term,' the Bank said in its monthly report, echoing comments from its chief, Wim Duisenberg.

The ECB has been under intense pressure to trim its 4.5% lending rate on concern the euro-zone economy may be sliding into recession. Gerhard Schröder, Chancellor of Germany - which is bearing the brunt of the slowdown - said the German economy would recover over the next six months. 'The measures we have taken to boost demand should clearly show in the second half of the year,' he said.

The euro fell half a US cent to 85.45 cents, or 60.70p against sterling.

© Associated Newspapers Ltd., 12 July 2001

-- (M@rket.trends), July 13, 2001.


>>Still, political pressure has already mounted on the central bank to share the burden of lifting the world's second-largest economy, which is teetering on the brink of recession.

I need help here. How can Japan still be 'teetering on the brink of recession' when its economy has been in the toilet already for a dozen years?

And notice how nobody, not nobody, calls any economic situation a 'depression' anymore? You can say all kinds of bad words on TV, and you earn a special grace if they are sexual and scatological-- with lots of canned laughter forthcoming. But homey don't never do 'depression.'

-- Scarecrow (Somewhere@Over.Rainbow), July 13, 2001.


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