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Japanese Central Bank Purchases More Government Bonds - 2002-02-28

Japan's central bank, hoping to give a boost to the country's ailing economy, has decided to buy more government bonds. The move comes as no surprise as Japan looks for additional ways to try to prop up its financial system.

In a widely expected action, the Bank of Japan decided to increase its monthly purchases of government bonds by 20 percent to about $7.5 billion.

It is the latest attempt by the Japanese central bankers to reverse the country's economic slowdown. The easy money policy has already reduced short-term interest rates to virtually zero. But, so far, increasing the cash flow has not improved Japan's weak economy.

Ron Bevacqua is the senior economist for Commerz Securities in Tokyo. He says that Japanese finance officials have few quick-fix economic tools left. "Now they have run out of options. They have already loosened monetary policy as far as it will go. They cannot spend money because the country's deficit is so large and the debt is so large so they are starting to tinker with the actual rules of the financial markets themselves," Mr. Bevacqua said.

The central bank's action comes a day after Prime Minister Junichiro Koizumi's cabinet introduced an anti-deflation package. Critics, such as Mr. Bevacqua, say its focus on setting up committees to come up with recommendations shows that the government has not come to grips with the need for urgent and drastic action. "Clearly this is more regressive than progressive. I do not really blame Mr. Koizumi. He may have failed on a number of scores, but in the end, the problem in Japan is not the person, but it is the institution of the prime minister, it is the institution of the Diet [parliament]. It is the inability of the political elite to set a course for the nation and get the rest of the country to follow along," Mr. Ron Bevacqua said.

The increase in government bond purchases is something the government has pushed for. Finance Minister Masajuro Shiokawa has led the call for the Bank of Japan to increase its monthly bond purchases.

Economic analysts say much more drastic action is needed, especially to take care of the huge bad loan mess that has left many Japanese banks technically insolvent.