The Bank of Japan has pledged keep interest rates virtually at zero and to pump more funds into the struggling economy by buying government bonds and other assets – in effect printing more money.
The fresh economic stimulus moves surprised the financial markets
The central bank seems to have finally accepted government calls for more decisive action.
Bank governor Masaaki Shirakawa explained: “While our economy may have been gradually improving, the slowdown in foreign economies and the effect of the foreign exchange market on business sentiment, we feel, has weakened this improvement.”
The yen initially fell in reaction, but the effect did nor last.
The stronger yen has been hurting Japan’s export dependent economy.
And Daisuke Uno chief strategist at Sumitomo Mitsui Banking expressed concern that now the Bank of Japan has nothing more to throw at the problem.
He said: “In a sense what the Bank of Japan did today was practically everything they could ever do and there is hardly anything more they can do after this. If they needed to ease policy rates further, things are likely to become negative very quickly from here on.”
Analysts generally were sceptical saying it was hard to see how the latest measures will prevent Japan’s deflation from intensifying.