The Bank of Japan may consider “extraordinary steps” to counter financial-market turmoil and a deepening recession, policy board member Hidetoshi Kamezaki said.
“The Bank of Japan is committed to doing its utmost to contribute to stabilizing financial markets,” Kamezaki, 65, said today at a business meeting in Takamatsu, western Japan. “Extraordinary times demand extraordinary steps.”
The central bank lowered the overnight lending rate on December 19 to 0.1 per cent from 0.3 per cent, the second cut in two months, and decided to buy corporate debt for the first time to pump money into the ailing economy. Kamezaki later told reporters that room for cutting the rate further is “limited” and the bank’s next policy steps should focus on improving funding for companies and influencing longer-term borrowing costs.
“The sense of crisis about the economy and financial markets mounted drastically within the central bank over the past month,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “We expect the bank to start buying corporate bonds, and it may resume purchasing stocks.”
Japanese companies have struggled to find investors who are willing to buy their debt since the global financial crisis intensified in September. Kamezaki said taking on businesses’ credit risk is a “very extraordinary step for a central bank.”
Purchasing commercial paper, or short-term corporate securities, means the central bank assumes the risk that companies will default on the debt, a concern highlighted by board members at their November meeting, minutes showed today. Japan needs to discuss how far the bank should go to support funding for companies, Governor Masaaki Shirakawa said December 22.
Central bank officials are examining the feasibility of buying a wider range of securities, including corporate bonds and stocks, and the policy board will make a decision based on their findings, Kamezaki said at today’s press conference.
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Kamezaki echoed remarks by Shirakawa that a key rate at 0.1 percent barely keeps the money market working and the bank should avoid a policy that impedes its function. The former executive at trading company Mitsubishi Corp. said he has no preconceptions about future interest-rate policy.
The bank “has virtually exhausted what it can do with rates to support the economy,” said Mamoru Yamazaki, an international strategist at RBS Securities Japan Ltd. in Tokyo. “The question now is how far the BOJ can expand the range of assets it buys to provide money, particularly to companies.”
Japanese banks’ borrowing costs eased for a sixth day. The Tokyo three-month interbank offered rate, or Tibor, fell to 0.76 per cent after reaching a decade-high 0.922 per cent on December 16.
“The Bank of Japan has implemented aggressive measures and we expect they will help to lower money market rates,” said Nobuto Yamazaki, an executive fund manager at Diam Asset Management in Tokyo.
The global economy will decline more sharply in the near future because markets will remain unstable, Kamezaki said.
He said he’s “very concerned” about the outlook for exports, referring to November trade numbers that showed overseas shipments tumbled a record 26.7 per cent from a year earlier. Spending by consumers at home will keep weakening because job prospects and wages are deteriorating, he said.
Reports tomorrow are likely to show industrial production fell in November, unemployment climbed and inflation eased.
Factory output tumbled 6.8 per cent from a month earlier, according to economists surveyed by Bloomberg News. Consumer prices excluding fresh food rose 1.1 per cent from a year earlier, slower than the 1.9 per cent in October, analysts predict.
Consumer-price inflation will keep slowing, even as a growing number of companies manage to pass costs on to households, Kamezaki said.