Bowing to government pressure, the Bank of Japan (BoJ) enacted measures to increase lending in an effort to try to stem the rise of the yen which threatens to hurt exports and undermine the nation's delicate recovery.
At an emergency meeting, BoJ officials elected to hike lending to commercial banks by 10 trillion yen (or about $117-billion) in hopes that the loans will reduce market interest rates.
In a statement, the BoJ said its new loan program would mean the immediate availability of 30 trillion yen.
"The bank believes that the monetary-easing measure, together with government efforts, will be effective in further ensuring Japan's economic recovery," the BoJ said.
In addition, the Japanese government of Prime Minister Naoto Kan revealed plans for a 920-billion yen stimulus package.
Last week, the yen ascended to a a 15-month high against the dollar.
Some leading Japanese companies had even threatened to move production facilities overseas if the yen continued rising.
The Nikkei stock index surged almost 1.8 percent in Monday trading, however the yen climbed against the dollar.
Some analysts were disappointed by the BoJ's decision.
“The Bank of Japan's decision to loosen monetary policy further at an emergency meeting today simply brought forward the move that was widely expected to take place early next month,” said Julian Jessop, chief international economist of Capital Economics Ltd. in London.
“The economic impact will be negligible and any impact on the yen will be diluted by the lack of a stated intention to weaken the currency or step up quantitative easing.”
In addition, Jessop said, the fact that BoJ chose to make the decision on the day when the world's largest foreign-exchange trading center (London) is closed suggests the move was designed more to appease a domestic Japanese. audience.
“This change is unlikely to have any significant impact on economic activity or the outlook for prices,” Jessop added.
“Financial institutions are already awash with cash and there is no evidence that banks are short of money to lend; instead, the weakness of bank credit reflects a lack of demand from firms and
While the move is inevitably being seen instead as aiming to stem the rise in the yen, notes that the statement accompanying the announcement actually says very little about the currency.
“The Bank's rhetoric falls well short of the explicit concerns over the strength of the yen expressed by government officials,” Jessop added.
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