Japan ignores IMF call for action

Jane Padgham12 April 2012

THE Bank of Japan today snubbed the International Monetary Fund in its call to tackle the damaging deflation that is plaguing the economy, and left its monetary policy unchanged. Following its latest meeting, the bank's policy board voted unanimously to stick to the so-called quantative easing policy it has conducted for the past 18 months, under which the BoJ pumps large sums of money into the financial system.

The meeting was held a day after the IMF pressed the BoJ to do more to stimulate Japan's stagnant economy. The IMF said the world's second-biggest economy was set to contract by 0.5% this year and it urged the BoJ to implement monetary policy that would halt deflation.

The Washington-based lender forecast prices will drop by 1% this year after a 0.7% decline in 2001. While the fund welcomed recent improvements such as higher private consumption and business investment in the first quarter, it said 'considerable downside risks' remained in Japan.

But the BoJ, which has kept interest rates at virtually zero by flooding the money market with liquidity, has been reluctant to adopt suggested ideas to stop prices falling, such as setting a target for inflation. It said it would continue to keep its target volume of current deposits parked at the BoJ at between 10 trillion and 15 trillion yen.

The board's decision comes amid mounting concerns over slow global growth, falling stock prices and a banking system hobbled by bad loans. Japan has been pulled out of recession by rebounding exports to Asia and the US, but economists say the outlook has been clouded by signs the US economy is faltering.

Japan's GDP raced ahead by an annualised 5.7% in the first quarter, but that number could be revised down. Prime Minister Junichiro Koizumi said on THursday he recognised the economic situation remained 'severe' and pledged to push ahead with reforms.

Despite the BoJ's inaction today, shares in Tokyo staged an impressive rally, buoyed by a strong performance on Wall Street overnight as markets celebrated the IMF's $30 billion rescue package for Brazil. The Nikkei 225 closed 200.22 points up at 9999.79. In London the FTSE 100 index climbed 31.2 points to 4271.7 in early trading.

Wall Street's Dow last night surged by more than 3%, taking its three-day gain to the biggest in 15 years. The Dow's three-day winning streak was the first in three months.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in