Japan acts as rising yen threatens chaos

JAPAN'S central bank has extended its cheap loan scheme amid calls to curb a rise in the yen that threatens the country's fragile economic recovery.

At an emergency meeting called a week ahead of a scheduled policy review, the Bank of Japan (BOJ) yesterday left the door open to further policy easing.

Government officials, increasingly alarmed by the yen's rise that saw it hit a 15-year high against the dollar last week, have tried to talk down the currency while leaning on the central bank to help by further relaxing its policy.

But following yesterday's meeting, the yen actually jumped more than 1 per cent against the dollar with investors viewing efforts to beef up the supply of fixed-rate loans to banks as a symbolic gesture that will do little to halt a climb in the currency that has hurts exports.

Simon Wong, regional economist at Standard Chartered Bank in Hong Kong, said: "Today's move is not a bold move. If the yen continues to appreciate, say beyond the 80 (yen to the dollar] level, that could trigger more direct intervention at some point."

Market players were disappointed the BOJ had stopped short of more aggressive moves such as increasing Japanese government bond purchases or cutting its overnight "rate call target" from 0.1 per cent to zero.

Masaaki Shirakawa, governor of the central bank, said the current level of bond buying was appropriate. He added, however, that the central bank could not rule out downgrading its forecast of recovery - a hint that it might act again if clearer evidence of a slowdown emerged.

In yesterday's move, the central bank increased the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion (227 billion) from 20tn. It also put in place a six-month fund operation in addition to the three-month loan programme already in place. The decision was by an 8-1 vote.

It comes amid increased pressure on other central banks, including the Bank of England and US Federal Reserve, to consider expanding their monetary easing programmes as global growth weakens.

At the weekend, the deputy governor of the Bank of England, Charles Bean, admitted central banks may have to provide more economic support.

Hinting at further quantitative easing in the UK, he said: "The deleveraging process is incomplete, the recovery remains fragile and a considerable margin of spare capacity is yet to be worked off, while further policy action may yet be necessary to keep the recovery on track."