Posted on: Wednesday, August 15, 2001
Nikkei soars 4 percent on bank news
Advertiser News Services
TOKYO — The benchmark Nikkei Stock Average soared 4 percent today, rebounding from a new 16-year low after Japan's central bank decided to pump more cash into the banking system to try to revive the stagnant economy.
But analysts questioned whether the move to ease monetary policy further was anything but a stopgap measure to buy time for Prime Minister Junichiro Koizumi as he attempts a wave of reforms.
The central bank will increase bond purchases by 50 percent and add $8.1 billion to the banking system, giving banks and brokerages more money to lend and invest.
The decision surprised investors, who had expected the bank to resist growing pressure to do more to battle the economic downturn.
The Nikkei jumped nearly 4 percent, rising 440.39 points to 11,917.95 after closing yesterday at its lowest level since Devemer1984.
Analysts said that with interest rates already at zero and banks struggling under bad loans estimated at $350 billion, the boost from injecting money into the system isn't likely to last long.
"Its impact is positive, but its durability is doubtful," said Masaaki Kanno, chief Japan economist at J.P. Morgan Securities in Tokyo.
Troubled banks aren't likely to step up lending, said Mamoru Yamazaki, chief Japan economist at Barclays Capital Japan. "The real effect on the economy is limited," he said. "Now the ball is in the government's court."
Koizumi has promised to clean up banks' bad debts, privatize public sectors, trim some government spending and help new businesses.
Japan has been mired in a decade-long slowdown as industrial production drops, exports fall and consumer spending remains flat. The global downturn is making matters worse, as Japan has long relied on exports as its engine for growth.
One big danger is the downward spiral of deflation, when falling prices cut into corporate earnings and worker pay, further hurting the chances for recovery.
The Bank of Japan's latest move is aimed at fighting deflation while giving Koizumi the time he needs to get reforms rolling.
