News & Analysis

The Bank of Japan yielded to political pressure to address deflation

The Bank of Japan yielded to political pressure to address deflation with new easing measures by expanding its 3-month 0.1% funding operation to ?20T from ?10T, but failed to impress the markets, which had expected either a 6-month lending expansion or an increase in monthly JGB purchasing. Instead, the BoJ left its JGB buying unchanged at ?1.8T and pointed to a moderating trend in deflationary pressure. Governor Shirakawa further downplayed the measure by calling it a part of monetary policy rather than quantitative easing, also suggesting market operations alone will not increase economic activity. In turn, Japan Government Spokesperson Hirano said the cabinet welcomes the BoJ's doubling of its lending program, reiterating the need for the government and central bank to cooperate in fighting deflation.