BOJ eases policy as Japan's recovery prospects fade

Wed Sep 19, 2012 5:26am EDT
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan eased monetary policy on Wednesday by boosting its asset-buying program, as prospects of a near-term recovery in the world's third largest economy faded due to weakening exports and a prolonged slowdown in Chinese growth.

The decision came hard on the heels of major quantitative easing announced by the U.S. Federal Reserve last week, and amid worries that a territorial dispute with China, Japan's biggest trading partner, will damage exports even more.

But, BOJ Governor Masaaki Shirakawa stressed that the move was prompted by recent disappointing data, not the Fed's action, while the anti-Japanese protests in China played no part in the decision to ease.

"Overseas economies are slowing more than we anticipated, which is why we downgraded Japan's economic view," Shirakawa told a news conference after the decision. "Japan's economic recovery could be delayed by about half a year."

The BOJ increased its asset buying and loan program, currently its key monetary easing tool, by 10 trillion yen ($127 billion) -- double the usual amount -- to 80 trillion yen, with the increase earmarked for purchases of government bonds and treasury discount bills.

Standing over $1 trillion, the total stimulus is now equivalent to nearly a fifth of Japan's economy.

The yen slipped to a one-month low, cash bonds rose and Tokyo's Nikkei stock average hit a four-month high on the decision to offer the bigger-than-expected stimulus, in a move that came a month earlier than many market players had expected.

In its statement announcing the decision, the BOJ cut its assessment of the economy to say its activity was pausing and projected growth to stay flat for the time being. It also took out a line forecasting a moderate economic recovery ahead.   Continued...

Bank of Japan Governor Masaaki Shirakawa is seen underneath a table during his news conference in Tokyo September 19, 2012. Shirakawa said on Wednesday that Japan's economic recovery may be delayed by six months due to a prolonged slowdown in global growth. REUTERS/Kim Kyung-Hoon