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| The Bank of Japan announced a small expansion of its deflation-fighting stimulus policies on Friday, but promised a full review of its approach. Kim Kyung-Hoon/Reuters |
TOKYO — As Japan’s economy limped into the second half of the year, some analysts hoped that the central bank would take radical steps at its policy meeting on Friday. It could move its benchmark interest rate further below zero. It could metaphorically drop money from a helicopter into the arms of Japanese consumers.
Instead, the central bank chose to keep things at a decidedly lower altitude, at least for now.
The Bank of Japan, the central bank, announced a small expansion of its deflation-fighting stimulus policies, with changes that ranked at the most cautious end of what analysts and investors had been expecting.
But in an implicit admission that policies to date had failed to defeat the debilitating wage and price stagnation afflicting the Japanese economy — the world’s third largest, after the United States and China — the bank said it planned to carry out a “comprehensive assessment” of its approach.
The review, which it said would be delivered at its next policy meeting, in September, is likely to keep economists and markets speculating about whether the bank might yet try more drastic measures to get the economy rolling. But the bank’s governor, Haruhiko Kuroda, said that he thought there remained more conventional policy levers to pull.
“I don’t believe we’re approaching the limits of negative interest rates or qualitative and quantitate easing,” Mr. Kuroda said, referring in part to the bank’s bond-buying program. “We’ve been pursing an aggressive monetary policy for three years, and its a natural time for a review.”
There are few weapons in the normal central banking arsenal that the bank has not tried.
Its benchmark interest rate is already below zero, a historically unusual phenomenon. It is buying up government bonds at a rate of 80 trillion yen, or $770 billion, a year to keep financial institutions flush with lendable cash. Even so, consumer prices still were down 0.4 percent in June from a year earlier and the economy has bounced between periods of growth and contraction.
The Nikkei and the Yen’s Diverging Paths
Mr. Kuroda said that the bank could push interest rates further into negative territory, noting that they are more steeply negative in some countries in Europe.
Yet on Friday, the bank left its policy rate unchanged at minus 0.1 percent and said it would continue purchasing the same amount of government debt. And the central bank came nowhere close to introducing so-calledhelicopter money, a catchall term for dumping cash straight into the economy by giving it to consumers or directly financing government spending.
Instead, it announced that it would increase the scale of a buying program for exchange-traded equity funds from ¥3.3 trillion a year to ¥6 trillion a year and double the size of a dollar-denominated lending program aimed at Japanese companies operating overseas to $12 billion.
The government of Prime Minister Shinzo Abe is putting together a package of spending measures that Mr. Abe said this week would most likely be worth ¥28 trillion, or about $270 billion. Details are expected to be announced next week. That, combined with a recent visit to Tokyo by Ben S. Bernanke, the former Federal Reserve chairman, had convinced some analysts and investors that the Bank of Japan might start to print money to pay for the spending.
The yen briefly jumped almost 3 percent against the dollar after the central bank announced its policy on Friday and was up 1.6 percent late in the Asian trading day. A stronger yen is damaging to many Japanese companies, which would receive less in exchange for their exports. Traders previously sold the currency in anticipation that a radical expansion in stimulus would weaken it.
Mr. Kuroda said he was against directly financing government spending with newly created money, a practice that has led to out-of-control inflation in some countries. But he suggested he was open to more nuanced cooperation between the government and the central bank.
“The right policy mix can produce synergies between fiscal and monetary policy,” he said, “but what we’re doing is totally different from simply monetizing government debt.”
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