News Column

Japan's Central Bank Defends Monetary Push

Feb 15, 2013

Hiroko Tabuchi

The recent monetary push by Japan is a legitimate bid to lift its economy out of deflation, the central bank governor, Masaaki Shirakawa, said on Thursday after leaving key interest rates unchanged.

The recent monetary push by Japan does not amount to currency manipulation and is a legitimate and much-needed bid to lift its economy out of deflation, the country's central banker said Thursday after new figures showed an unexpected economic contraction in the fourth quarter.

"Monetary policy seeks only to stabilize the economy," Masaaki Shirakawa, the Bank of Japan governor, said in Tokyo after the central bank decided to stand pat on policy moves for now, maintaining its benchmark rate target at a range of zero to 0.1 percent and holding off on expansion of an asset-buying program. "It does not seek to influence currencies."

Earlier Thursday, gross domestic product numbers from the government showed the Japanese economy remained fragile, shrinking at an annualized rate of 0.4 percent in the quarter from October to December, the third consecutive quarter of contraction.

Still, economists expect a Japanese economic recovery to gain steam later this year, as Prime Minister Shinzo Abe pursues fresh fiscal stimulus programs while keeping up pressure on the central bank to stick to near-zero interest rates and continue to flood the economy with money.

Markets have jumped since Mr. Abe began pushing his agenda in mid- November as part of a successful campaign that put his Liberal Democratic Party back in power for the first time since 2009. During the past three months, the Nikkei 225-share index has risen 30 percent, while the yen has weakened by 15 percent against the dollar.

Last month, the government and central bank promised to work together on monetary policies until Japan achieved 2 percent inflation, a lofty goal for Japan, which has been mired for more than a decade in deflation, a damaging decline in prices.

Mr. Shirakawa is due to end his five-year term next month, and Mr. Abe has signaled that he would appoint a successor who will be more aggressive in fighting deflation.

But increasing the Japanese monetary supply to end deflation would also cause the yen to weaken, which Japanese policy makers have openly welcomed as a boon to the country's exporters. That has led to grumbling from officials in the European Union and elsewhere that Japan was manipulating its currency to give its exports an unfair edge.

On Tuesday, the Group of 7 advanced economies, which includes Japan, pledged to let markets determine the value of their currencies -- a statement that brought relief in Japan because it was not singled out for criticism but that also signaled that the prospect of competitive currency devaluations would be up for debate at the meeting this week in Moscow of finance officials from the Group of 20 leading economies.

Finance Minister Taro Aso of Japan vowed to defend the country against those claims at the Group of 20, saying Thursday on his Web site that "the world had been awed" by Japan's recent economic policy moves, which were "the subject of global attention."

"Other countries want to know how we have done this," Mr. Aso said. "It is absolutely not a result of us intervening in foreign exchange markets."

Source: (C) 2013 International Herald Tribune. via ProQuest Information and Learning Company; All Rights Reserved

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