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Japan step up fight against “downturn”

Posted on: March 19, 2009


AFP – Thursday, March 19

137784714-japan-steps-up-fight-against-economic-downturn1TOKYO (AFP) – – Japan’s central bank announced Wednesday that it would pump more cash into the financial system to tackle a worsening recession, while keeping its interest rates at close to zero.

The emergency action, which will boost purchases of government bonds, is the latest salvo by the Bank of Japan in its battle against what is feared to be the worst economic downturn since World War II.

Bank of Japan governor Masaaki Shirakawa said it was too soon to say the global financial system was on the mend, despite the recent rally on world stock markets.

“Although share prices are recovering right now, it does not mean the global financial market has regained stability,” Shirakawa told a news conference.

The Bank left its key lending rate on hold at 0.1 percent for a third straight month, as expected.

It also said it would boost its outright purchases of Japanese government bonds by almost 30 percent to 21.6 trillion yen (219 billion dollars) a year to keep credit flowing during the economic downturn.

Japan was once seen as relatively immune to the financial crisis, but its economy is now shrinking much faster than many others, including the United States, due to a collapse in exports.

The economy is “likely to continue deteriorating for the time being” and financial markets are expected to “remain under stress” in the foreseeable future, the BoJ warned in a statement.

The BoJ’s latest announcement came a day after it said it would lend up to one trillion yen (10 billion dollars) to commercial banks to cover risky debt.

Analysts, however, warned the impact of the central bank’s latest measures would be limited.

“The loans are likely to help stabilise financial institutions, but we cannot expect much from the measure in terms of a general economic recovery,” said Koichi Haji, chief economist at the NLI Research Institute.

“There would be a limit to what the Bank of Japan can do as it has already taken every possible measure in its monetary policy,” Haji said.

The bank has trimmed official borrowing costs twice since October. With almost no room left to reduce its key lending rate any further, it is seeking alternative tools to spur lending.

Japan’s banks escaped the worst of the subprime loan crisis but its manufacturers have been badly hurt because their products, such as cars and televisions, often drop off consumer shopping lists when times are tough.

In the latest boardroom shake-up in Japan, Toshiba Corp. said that it was appointing a younger president, 59-year-old Norio Sasaki, to take the reins of the loss-making high-tech giant.

Japan’s economy logged its worst performance in almost 35 years in the last quarter of 2008, contracting at an annualised pace of 12.1 percent. Many analysts expect the recession to be the worst in the post-war era.

The BoJ said it expected the economy to start recovering from the second half of the next fiscal year to March 2010, but it warned of significant uncertainty over the outlook.

Prime Minister Taro Aso last week announced plans for a third stimulus to revive Asia’s largest economy, following two earlier packages worth a total of about 50 trillion yen.

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