Central bank to inject cash into Japan


Hayami has ruled out the most radical BOJ steps

By staff and wire reports

TOKYO, Japan -- The central Bank of Japan is trying to boost the country's labored economy by injecting more cash into it.

The BOJ, ending a two-day policy board meeting on Wednesday, said it is increasing the amount of Japanese government bonds it will buy each month, to 800 billion yen ($6.25 billion), up from 600 billion.

The central bank has also decided to raise the target for current-account deposits held at the bank to between 10 and 15 trillion yen.

That level has stood officially at "above 6 trillion yen," although over the past month it has run at 9.1 trillion yen.

Officials have welcomed the steps.

"I rate the BOJ's decision highly," Economics Minister Heizo Takenaka said.

'Wasting everybody's time'

But Japan watchers are skeptical that the steps will have any long-term effect. Many believe that with interest rates close to zero in Japan, there is little the BOJ can do.

ING Barings economist Richard Jerram called the BOJ moves a "marginal change in policy."

"Our view is that they are wasting everybody's time," Jerram stated in a report. "The BOJ has again made a token policy change in response to external pressure."

He faulted the bank for failing to say or show how either move will benefit markets or the economy.

The BOJ has come under heavy pressure, not least from Prime Minister Junichiro Koizuimi's government, to do more to help out Japan.

But Governor Masajuro Hayami had already ruled out some of the most controversial suggestions for jumpstarting Japan, such as buying more foreign debt such as U.S. Treasuries or buying corporate bonds in Japan.

The BOJ can't buy corporate paper when many Japanese companies are at risk of collapse, he has stated.

Aggressive easing ahead

Regional supermarket chain Kotobukiya, the largest on the southern island of Kyushu, became Japan's 14th public company to go under this year when it filed for court protection on Wednesday.

Still, Wednesday's moves from the BOJ are intended to inject more money, more liquidity, into Japan.

Finance Minister Masajuro Shiokawa praised the BOJ for thinking out of the box.

"It was good that the BOJ is considering accepting more and varied instruments," he told reporters. "That shows the BOJ is ready to aggressively ease further in the future."

The yen raced up after Shiokawa hinted at further easing. But there was little reaction after the BOJ's announcement.

It is trading stronger after hitting a three-year low on Tuesday against the U.S. dollar. On Wednesday it was back below 128 at 127.72 in European trade.

Takenaka, the economics minister, said the government would work in tandem with the central bank to aid Japan.

With wages declining, prices moving backwards and incomes off, the economy risks getting trapped in a downward deflationary spiral.

"The government will work closely with the BOJ to stem deflation swiftly," he said in a statement after the BOJ's move.

Benefit seen as short-lived

The moves boosted many bank stocks, with investors betting they'd benefit from easier credit. But the gains are expected to be short-lived.

Mizuho Holdings, the world's largest bank by assets, leaped 5.05 percent to 229,000 yen.

No. 4 bank UFJ Holdings climbed 6.4 percent to 250,000 yen. Smaller Asahi Bank climbed.

The Nikkei index ended the day up 0.38 percent at 10,471.93. It had gone into the noon break down 0.1 percent, but stocks reacted warmly to the BOJ easing.

But despite these rises, Jerram said the BOJ has to take unconventional steps such as buying real estate, corporate debt or foreign bonds to boost Japan's ailing economy.

Wednesday's steps to increase bond buying and raise deposits will have little effect on monetary policy, Jerram added, when rates are close to zero.

He said that BOJ members understand this, but they have taken such steps to appease Japanese politicians.

Reuters contributed to this report.