Thursday June 21, 2012

Europe woes may need BoJ action

TOKYO: Europe's simmering debt crisis had made some Bank of Japan (BoJ) policymakers worried enough in May to signal readiness to ease monetary policy again should risks to Japan's economy heighten, minutes of the central bank's meeting last month showed.

Governor Masaaki Shirakawa yesterday also warned in a speech that the eurozone crisis was a primary risk to the world economy as Greece and Spain face the tough challenge of tackling a faltering economy and fiscal reform at the same time.

In the May meeting, a few board members also worried about growth in China, saying that any clear slowdown in Japan's biggest export destination could force the BoJ to alter its view that Japan's economy will resume a moderate recovery.

In the May meeting, the BoJ stood pat on monetary policy after having eased in April via an increase in an asset-buying programme, under which it buys assets ranging from government bonds to private debt in an effort to re-inflate the economy.

While the board agreed that it needed to still assess the effect of the April action on the economy, some members said the central bank must be ready to act if developments in Europe deteriorated and threatened Japan's recovery.

“A few members raised the possibility that Japan's economy would be adversely affected if substantial risks stemming from Europe's debt problem materialised,” according to the minutes of the May 2223 meeting released yesterday. “These members said the BoJ should, therefore, stand ready to take appropriate actions without ruling out any options in advance.”

The BoJ held off on increasing the size of its 40-trillion-yen (US$506bil) asset-buying programme last week, saving its firepower in case Europe's debt crisis triggered a spike in the safe-haven yen.

Shirakawa signalled that the central bank remains on alert.

“Major turmoil has been avoided following the outcome of the Greek election last weekend but Greece is pressed to implement fiscal and structural reforms while the economy slumps sharply,” he said in a speech at a gathering of shinkin credit union banks.

“There is no change in the severe conditions facing Greece. As for Spain, its fiscal and financial systems and the real economy are negatively affecting one another. We're on a continued watch,” Shirakawa said.

Some analysts expect the central bank to ease policy in July, when it issues revised long-term economic and price forecasts that may show a sustained end to deflation is still distant.

One board member, presumably Shirakawa, said at the May meeting that structural problems were partly behind deflation and that it took a long time for the effect of monetary policy to show on the economy, signalling the BoJ had done enough for now.

But others appeared more eager to offer further monetary stimulus with some voicing concern about slowing demand in China, as well as the effect a strong yen and falling share prices could have on business spending.

“Some members said that if Chinese growth were to decelerate noticeably it would affect the BoJ's (long-term) economic outlook presented in the April semi-annual report, which is based on the assumption that overseas growth will accelerate,” the minutes showed.

Doubts about the European Union's ability to contain its debt crisis have jolted financial markets, driving up the yen on safe-haven demand to the dismay of Japanese policymakers worried about the effect on exports. - Reuters

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Thursday June 21, 2012

Europe woes may need BoJ action