So Japan is cranking up money creation. sombody decided this was
good for the chinese stocks today...look at BYH, SHI and Jcc
all up over 15% today.
This is probably helping the move in the drillers today
March 3, 1999
Japan's Short-Term Rates
Slip to Just Above Zero
Dow Jones Newswires
TOKYO-Under continued heavy political pressure at home and abroad to do more to salvage Japan's crippled economy, the Bank of Japan flooded the interbank lending market with cash, pushing Japanese short-term interest rates to an all-time low.
The Bank of Japan guided the key unsecured overnight call rate, the rate banks charge each other for unsecured short-term loans, to a record low of 0.02%, down from 0.07% the day before. Other interest rates often fall in line with a decline in the call rate. Falling interest rates hurt the Japanese currency by making holding yen less profitable than investing in other currencies.
The easing also spilled over into the Japanese government bond market, causing yields to fall sharply. In reaction, the dollar was soared against the yen in Asian trading. Tokyo stocks closed 1.8% higher as the dollar, in late afternoon trading in Tokyo, was quoted at 121.18 yen, up from 120.25 yen late Tuesday in New York.
But analysts say it is time for the central bank to shift its focus from interest-rate policy to boosting money supply by huge amounts.
Japan has come under increasing international pressure to revive its sluggish economy, mired in its deepest recession since the end of World War II. Japan's economy is still struggling to shake off the effects of a plunge in land prices in the early 1990s, which buried the country's banks under a mountain of failed or risky loans.
Analysts Raise Deflation Concerns
The Bank of Japan has resisted a strongly expansionary policy so far-a step that would boost the central bank's balance sheet through increased purchases of debt-because of concerns that doing so would bring the risk of hyper-inflation. But analysts say a glaring deficiency of base money supply is causing a different problem: deflation.
"When prices of goods, assets, and foreign currencies are all falling in terms of yen, there is no reasonable room for doubt that monetary policy is extremely tight," said U.S. economist Alan Reynolds of the Hudson Institute.
The "demand gap" in the economy is caused by a deficiency in the central bank's supply of base money, measured by the size of the bank's balance sheet, he said. "An apparent excess supply of goods and assets is really an excess demand for money," Mr. Reynolds said.
To be sure, the Bank of Japan has been consistently pursuing conventional steps to support the economy. At least three times recently, the central bank has lowered the target for its overnight call rate.
But it appeared to abandon targets altogether, as Bank of Japan Governor Masaru Hayami said he would accept a call rate of 0% if the market allowed that to happen. In addition, the Bank of Japan has left excess funds in the money market during its daily operations to keep rates soft.
Many analysts say Japan's economic ailments defy conventional cures. With prices falling and conditions where interest rate reductions no longer provide stimulus, it is time for the central bank to focus on fighting deflation, they say.
Japan's overall wholesale price index dropped 3.6% on year in the latest data released Feb. 25, showing that over three years of overnight call rates at 0.5% or below have done little to relieve downward pressure on prices.
Deputy U.S. Treasury Secretary Lawrence Summers, in Tokyo last week, aired similar concerns, according to the policy chief for the ruling Liberal Democratic Party, Yasuhiko Ikeda. After the two men met, Mr. Ikeda told said: "Mr. Summers told me that the Bank of Japan's monetary steps so far may not be enough. He said he understood the Bank of Japan's concern about inflation, but still it should worry more about the risk of deflation than it does now."
Pressure Mounts on BOJ
The International Monetary Fund's First Deputy Managing Director Stanley Fischer added to the pressure on the Bank of Japan Tuesday. "With the yen where it is now, they could be more expansionary. They could try to buy up lots more paper," he said.
The key, analysts say, is for the Bank of Japan to start expanding its balance sheet at a pace that would be many times steeper than in recent weeks. Mr. Reynolds recommends that the Bank of Japan expand its balance sheet through net buying of securities "without limit" until the deflation is arrested.
The central bank's latest balance sheet report, for Feb. 20, shows assets and liabilities of 76.272 trillion yen ($634.38 billion), compared with 75.199 trillion yen Feb. 10. A year earlier, at the end of February 1998, the Bank of Japan's balance sheet totaled 74.607 trillion yen-showing almost zero expansion over the last year of supposedly "easy" monetary policy.
In recent sessions, the Bank of Japan has been leaving larger-than-usual bank reserves in the market, which some interpret as a possible step toward a new policy framework. Wednesday, the Bank of Japan added 400 billion yen to the money market to leave reserves around 1.8 trillion yen above the requirement.
"It's not clearly quantitative easing, but they're testing, maybe," said Goldman Sachs economist Yoshito Sakakibara.
The move could also be part of a normal increase in liquidity in the lead-up to the end of the fiscal year March 31, noted Merrill Lynch fixed-income analyst Masuhisa Kobayashi.
Any shift to a policy of balance sheet expansion could result in enormous volumes of bank reserves. Proponents of the policy say the economy would pick up some months later, and the reserves would eventually be absorbed.
But the Bank of Japan remains cautious. The bank has yet to make any clear statement of a change of policy, causing the kind of guessing game that has been infuriating market watchers for years. If a change does come, "it will be gradual, and not dramatic," Mr. Kobayashi said.
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