Japan's central bank hopes a 115 billion dollar loan program will help boost the country's economy. The Bank of Japan decided to issue the loans to fight a rising currency and deflation. But critics say that move is not enough.
Japanese stocks fell Wednesday, a day after the central bank approved a new lending program to boost the country's stagnant economy.
The Bank of Japan agreed to loan $115 billion to financial institutions for three months at a rate of 0.1 percent. Initial news of the BOJ's emergency meeting on Tuesday raised hopes of an interest rate cut, and stocks rose immediately after the BOJ's announcement Tuesday. But they quickly fell, as analysts reacted with disappointment.
Interest rate strategist Christian Carrillo with Societe Generale Securities calls the BOJ's decision weak and without purpose. He says he expected the bank to buy up more Japanese government bonds when he heard about the emergency meeting - instead, it was what he calls a "mild" response.
"What it appears to be is an attempt to save face with the government, which is asking for help," Carrillo said.
The BOJ has been under intense government pressure to stimulate the economy since the yen reached a 14-year high last week against the dollar.
The strong yen hurts Japanese exporters struggling to sell goods that are now more expensive in foreign markets.
The government also is fighting deflation - shrinking prices for consumer goods and assets.
Despite that, the BOJ resisted government calls to change its policies and said global economics would drive the domestic market.
"They talk about a Japanese economy that is improving driven by the improvement of the global economy," Carrillo said. "Therefore is a gap on the understanding of what each should do."
BOJ officials deny reports that public pressure affected his decision but government spokesman Hirofumi Hirano welcomed the change.
He says the bank reacted appropriately and swiftly to the changes in the economy.
Prime Minister Yukio Hatoyama has expressed support for the bank's decision. He is meeting with the BOJ governor on Wednesday. Mr. Hatoyama's government has already proposed an additional 31 billion dollar stimulus package to bolster employment and economic growth.
But Carrillo says the stimulus plan and the BOJ loans will not be enough to bring the country's economy back. He says the BOJ should buy up more government bonds and cut interest rates further, and he hopes the changes will come when the bank holds a policy meeting in a few weeks.