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Japan does not expand its bailout in response to US

(Update) The Bank of Japan is not stepping up efforts to reflate the Japanese economy in response to the US bailout this week but is proceeding with unusual plans to buy shares in investment funds.

 
Japan does not expand its bailout in response to US

(Update) The Bank of Japan has decided not to increase measures to inflate the Japanese economy in response to the US decision to pump a further $600 (£370) billion into its economy this week.

However, the central bank is proceeding with unusual plans to buy shares in exchange traded funds and real estate investment trusts as part of a 5 trillion yen (£38.2 billion) asset buying scheme starting next week.

Maintaining interest rates at an ultra-low level of between 0% and 0.1% the central bank painted a downbeat picture of Japan’s economy.

‘Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing. Exports and production have recently been more or less flat,’ it said.

‘Business fixed investment is showing signs of picking up. The employment and income situation has remained severe, but the degree of severity has eased somewhat,’ it added.

The central bank had brought forward this week's meeting from the scheduled date in mid-November, triggering speculation that it wanted to respond to the fresh round of quantitative easing the US Federal Reserve unveiled on Wednesday.

But Bank of Japan governor Masaaki Shirakawa has denied the bank is competing with the Fed. ‘I do not see Japan and the United States as in a monetary easing competition,’ Reuters reported him as saying. ‘The degree of monetary easing cannot be measured simply by the amount of assets central banks purchase’.

Quantitative easing techniques have seen governments around the developed world spend huge sums buying back bonds from investors in a bid to ease the credit crunch and restore confidence in the banking system and the broader economy. Japan, which is struggling to escape a deflationary slump, is going further than the UK, US and Europe in saying it will purchase exchange-traded funds tracking the Tokyo Stock Price Index or the Nikkei 225 Stock Average and credit worthy Japanese real estate investment trusts.

1 comment so far. Why not have your say?

Razzgox

Nov 05, 2010 at 17:05

Can somebody explain the logic of this action. To me it just sounds like investment/speculation. Surely banks need to stimulate the economy by lending to real businesses to create real new jobs and to encourage competition. I just don't understand how this will work. Can someone please help??

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