NAGOYA, Japan, Nov 30 — The head of the Bank of Japan (BOJ) said the bank will act decisively if financial markets destabilise again, his strongest hint yet at fresh steps to support markets, as the government piles pressure on it to act against deflation and the risk of another recession.
The comment came ahead of BOJ Governor Masaaki Shirakawa’s expected meeting with Prime Minister Yukio Hatoyama this week, which a government spokesman said could touch on whether the BOJ was considering adopting quantitative easing.
“We absolutely don’t have any plan to prepare for exiting our easy policy,” Shirakawa told business leaders in Nagoya, central Japan.
“If we experience financial market turmoil again, the BOJ will act aggressively and decisively,” he said.
The government, worried about the risk of another recession, is putting pressure on the BOJ to do its part to support the economy. But the bank has said there is little it can do beyond keeping interest rates at the current 0.1 percent to push up prices.
Analysts say the BOJ will eventually be pressed to increase its government bond buying, however, or revert to a quantitative easing policy of flooding markets with extra cash.
Shirakawa said he recognises the pain felt by Japanese companies from the yen’s surge to a 14-year high, adding that he would closely examine how currency moves affect the economy.
He said the BOJ held a very cautious view of the economy and shared the government’s view that the country was in mild deflation in the sense that price falls are likely to persist.
The government is considering including measures to deal with the recent surge in the yen in an economic stimulus package it plans to compile this week.
Data on Monday showed industrial output rose 0.5 per cent in October and manufacturers forecast further rises in the following two months, easing some concern that the economy could slow to a standstill or even contract early next year.
But the yen’s surge last week is hurting Japanese manufacturers’ profitability and could derail an export-driven recovery in the economy.
Finance Minister Hirohisa Fujii said that he would not intervene in currency markets and that now was the time to monitor the markets, Japan’s Mainichi Shimbun daily reported today.
A rebound in the manufacturing sector has been driving Japan’s recovery since earlier this year. The economy grew 1.2 per cent in July-September after a revised 0.7 per cent expansion the preceding quarter. — Reuters
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