The Bank of Japan has bowed to government pressure to curb the rise of the yen in order to protect the country’s fragile economic recovery.
The central bank increased the number of cheap loans it has available for banks, but the move was seen by the markets as a symbolic gesture and not aggressive enough.
The yen remained near a 15-year high against the dollar, which hurts exports and may prolong Japan’s deflation.
“Today’s move is not a bold move,” said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong.
“If the yen continues to appreciate, say it appreciates beyond the 80 level, that could trigger more direct intervention at some point.”
In a statement after a meeting on economic steps to help keep the recovery on track, cabinet ministers said the government would watch currency moves carefully and take “decisive action” as needed – a phrase seen as code for possible intervention.
“Japan is facing a rise in the yen and there are concerns about a slowdown in overseas economies,” Prime Minister Naoto Kan told a meeting of ministers with economic portfolios.
Japan’s economic growth slowed to a crawl in the second quarter as exports to the United States and China ebbed and stimulus-driven consumption petered out.
Analysts expect growth to slow further later this year.