Tuesday, August 31, 2010

Japan central bank acts on stronger yen

The strength of the yen against other currencies is a worry for the Japanese economy

The Bank of Japan (BOJ) has announced measures to boost lending aimed at combating the rising value of the yen.Following an emergency meeting, the central bank said it would increasing lending to commercial banks by 10 trillion yen ($117bn; £75bn).

The measure is designed to stem the value of the currency, and boost lending to businesses.
Meanwhile the Japanese government has announced its own plans for a 920 billion yen stimulus package.
Prime minister Naoto Kan said ministers had agreed a plan to fight the rise in the yen, as well as to try and counter weakness in some economies - especially the US and in Europe - that buy Japanese goods.
Analysts fear the rising yen is undermining the country's fragile economic recovery.

Roland Buerk BBC News, Tokyo
"I hope Tokyo will hear our cries for help."

That was how the boss of Suzuki, Osamu Suzuki, described the pain Japan's exporters have been feeling because of the high yen, and their desire for something to be done.When making their plans for the year, many companies had been betting on the yen staying at about 90 to the dollar.So when it hit a 15-year high of 83 yen, it bit deeply into their profits.
Politicians have been leaning heavily on the Bank of Japan to act.But the Bank has made little more than a show of willingness, and the ball is now back in the government's court.

A strong yen makes exports less competitive overseas. It also reduces the value of profits made abroad when they are repatriated to Japan.In a statement, the BOJ said its decision to boost its low interest bank loan programme meant 30 trillion yen was now available for lending.

"The bank believes that the monetary-easing measure, together with government efforts, will be effective in further ensuring Japan's economic recovery," it said.

Yen rises again

The BOJ hopes that increasing the amount of loans available will reduce market interest rates, curbing rises in the yen. Last week the currency hit a 15-month high against the dollar - potentially a significant problem for the Japanese economy which relies heavily on exports for growth.

A recent government survey suggested that many companies in Japan were considering moving production overseas if the yen remained strong.The BBC's Tokyo correspondent Roland Buerk said that the bank's Governor, Masaaki Shirakawa returned from the United States a day earlier than planned to handle the currency crisis.

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¥1 buys change %
0.0118 + +0.0001 + +0.62

More data on this currency pair
Our correspondent added that doubts persisted about whether the latest measures would have much effect, given that Japan was mired in deflation.Japan's economic growth has also continued to be sluggish, slowing to just 0.4% at an annualised rate in the second quarter of the year.Recent data suggests that China is poised to overtake Japan as the world's second biggest economy.The markets appeared unimpressed by the BOJ's actions.

The yen gained ground against all major currencies following the announcement, after seeing some falls before the bank met. Analysts suggested investors were looking for much stronger action from the BOJ.

The Nikkei 225 index of leading Japanese shares ended the day up 1.8%.

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