Finance ministers from the world’s largest economies endorsed Japan’s recently launched easy-money policy Friday, downplaying previous concerns that the strategy could give Japan an unfair trade advantage.
“We discussed it, but not with the same amount of concern as this past February,” Russian finance Minister Anton Siluanov told reporters after chairing a meeting of the Group of 20 finance ministers and central bank governors. “It was discussed in a very calm manner.”
The G20 group of countries held a meeting here this week during the spring meeting of the International Monetary Fund and World Bank.
Japan’s major exporters are quickly reaping the benefits of a weaker yen, upgrading profit projections and inspiring confidence in the ability of a newly elected government and a more dovish central bank to steer the country out of two decades of economic malaise.
Toyota Motor Corp. underscored the new air of optimism on Tuesday when the auto giant hiked its profit forecast for the current fiscal year to a five-year peak. This followed similar upward revisions last week by Nintendo Co. and Japan Tobacco Inc. A weaker currency, coupled with a recent wave of cost-cutting in autos, electronics and other key sectors, signals a surge in profitability for Japan Inc.
In the markets, it’s being called “Abenomics,” named for the new Prime Minister, Shinzo Abe, who has taken his overwhelming victory in December as a green light to pursue an economic revival strategy centred on massive infrastructure spending, more debt financing and monetary policies designed to depreciate the currency and put some inflation back into the deflation-prone economy.
Japanese Prime Minister Shinzo Abe waded into the growing global debate about currency wars for the first time on Wednesday, shrugging off criticism that Tokyo was trying to intentionally weaken the yen with its monetary and fiscal stimulus measures.
“The measures taken by the government and the BOJ are aimed at beating deflation and achieving sustainable economic growth,” Abe said, when asked by an opposition party leader in parliament about criticism from some overseas policymakers that the steps were attempts by Tokyo to directly weaken the yen.
It was his first public comment on the issue.
German Chancellor Angela Merkel last week singled out Japan as a source of concern following recent moves by its central bank to quicken the pace of money-printing.
South Korea has also been vocal in recent days, with the governor of the central bank saying on Saturday that Japan’s latest monetary easing had “created problems.
The Bank of Japan set an ambitious 2 percent inflation target and pledged to ease monetary policy “decisively” by introducing open-ended asset purchases, following intense pressure from the country’s audacious new prime minister, Shinzo Abe, who has made beating deflation a national priority.
In a joint statement with the government, the central bank said it was doubling its inflation target to 2 percent and said it would “pursue monetary easing and aim to achieve this target at the earliest possible time.”
The Bank of Japan also said that it intended to purchase assets indefinitely, promising to stick to a program that has allowed the bank to pump funds into the Japanese economy, even with interest rates at virtually zero. The bank’s board voted to keep its benchmark rate at a range of zero to 0.1 percent.
The Bank of Japan has delivered its third dose of monetary stimulus in four months in a prelude to more aggressive action next year, as it faces intensifying pressure from the country’s next leader for stronger efforts to beat deflation.
Shinzo Abe, whose opposition Liberal Democratic Party (LDP) won Sunday’s election by a landslide, has put the central bank’s independence on the line by repeatedly calling for a binding 2 per cent inflation target, double its current price goal.
The BoJ expanded its asset-buying and lending programme by 10 trillion yen ($112 billion) to 101 trillion yen, a widely expected move to ease monetary policy in response to the intense political pressure.
It also signalled a review of its current 1 per cent inflation target at its next policy-setting meeting in January, when Abe will have a new cabinet in place ready to negotiate with the central bank.
Japan’s central bank gets its first chance this week to respond to the challenge laid down by Shinzo Abe following his party’s landslide victory in a general election on Sunday. Investors are already betting it will flinch.
The Bank of Japan is due to hold its regular monthly policy meeting on December 19-20, giving investors and policymakers outside Japan their first glimpse into how the bank intends to stand up to Abe’s campaign pledge to push it into more radical economic stimulus measures, including a big increase in the kind of money-printing tactics already being employed by the U.S. Federal Reserve.
The bank’s response could influence global financial markets next year, potentially adding the world’s third-largest economy to the growing number of nations experimenting with a policy akin to printing money to revive growth and ease government debt. It will also signal how much independence the central bank can retain under the new government.
The dollar jumped to a 20-month high against the yen Monday after Japan elected a new prime minister over the weekend.
Traders sent the yen lower on concerns that new Prime Minister Shinzo Abe will push for a change in monetary policy.
Abe, Japans seventh prime minister in just over six years, said before he was elected that he wanted the countrys central bank to cut interest rates to zero or below to boost Japans economy. That move could weaken the yen.
The dollar rose to 83.83 Japanese yen late Monday from 83.46 late Friday. The dollar rose as high as 84.207 Japanese yen earlier, its highest point against the yen since April 13, 2011.
The countrys exports plunged 10.3% in September from a year ago, dimming hopes of rapid recovery in the Far East. Exports to Europe crashed 21pc. Shipments to China fell 14pc as the Diaoyu-Senkaku islands dispute led to a slump in car sales. Honda, Mazda, and Nissan all saw sales plunge near 30pc as Chinese consumers boycotted Japanese brands. Nomura said the export slump will push country into full recession.Stephen Jen from SLJ Macro Partners said the global storm is drifting eastwards into Asia, opening a “third chapter” of the crisis that will last well into 2013. “Many analysts have declared that the low in the global economic cycle is in place. We are not convinced,” he said, prediticting a rise in currency protectionism.
The Japan government decided to expand a lending program that will use government-held dollars to increase foreign acquisitions and investments in natural resources to about 10 trillion yen (about $130 billion), aiming to rein in the Japanese currency, the Nikkei business daily reported.
The expansion is part of a package of policy responses to the strong yen that the cabinet is set to approve on Friday, the newspaper said.
Earlier plans for the lending program run by the state-backed Japan Bank for International Cooperation had called for $100 billion, or roughly 7.7 trillion yen, in loans, the paper said.
The dollar funding will come from a special government account for foreign exchange interventions, the Nikkei said.
Japan’s finance minister said on Friday the government will secure an additional 15 trillion yen in funds for currency market intervention, as it looks to boost its ability to tame the yen.
Jun Azumi added that the finance ministry will require currency traders to report daily their trading positions for another three months beyond the end of September in an effort to deter speculative moves.
Japan will boost the size of its intervention funds by 15 trillion yen ($195.79 billion) to "flexibly" respond to the yen’s upward trend, Azumi said, adding that its current strength threatened Japan’s recovery.