Saturday, August 28, 2010

Japan central bank acts on stronger yen

The Bank of Japan (BOJ) has announced measures to boost lending aimed at combating the rising value of the yen. Following an emergency meeting, the central bank said it would increasing lending to commercial banks by 10 trillion yen ($117bn; £75bn). The measure is designed to stem the value of the currency, and boost lending to businesses.Analysts fear the rising yen is undermining the country's fragile economic recovery.

A strong yen makes these goods less competitive overseas. It also reduces the value of profits made abroad when they are repatriated to Japan.  In a statement, the BOJ said its low interest bank loan programme now totalled 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," it said. It is hoped that increasing the amount of loans available will reduce market interest rates, curbing rises in the yen. 

Last week the currency hit a 15-month high against the dollar - potentially a significant problem for the Japanese economy which relies heavily on exports for growth. A recent government survey suggested that many companies in Japan were considering moving production overseas if the yen remained strong. The BBC's Tokyo correspondent Roland Buerk said that the bank's Governor, Masaaki Shirakawa returned from the United States a day earlier than planned to handle the currency crisis. Our correspondent added that doubts persisted about whether the latest measures would have much effect, given that Japan was mired in deflation. Falling prices make the cost of borrowing higher in real terms.


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