Japan’s Abe pledges broad policy support to weather Brexit shock
by Tetsushi Kajimoto and Leika Kihara
2016-06-29 12:47:12.0
TOKYO — Japanese Prime Minister Shinzo Abe pledged on Wednesday to use all available policy tools to keep the wheels of the economy turning as financial markets were gripped by uncertainty in the wake of Britain’s shock vote to exit the EU.
The yen’s spike following the referendum has kept Japanese policy makers on edge as a stronger currency threatens to put more pressure on the export-reliant economy, already reeling from weak demand at home and abroad.
Retail sales fell more than expected in May, data showed earlier in the day, keeping policy makers under pressure to roll out more stimulus.
"Consumer spending has been stagnant and the trend is likely to continue for a while due to sluggish growth in wages," Mizuho Research Institute senior economist Hidenobu Tokuda said.
In a meeting to discuss post-Brexit market developments, Abe urged Bank of Japan (BoJ) governor Haruhiko Kuroda to ensure the central bank provided ample funds to the market to prevent any credit squeeze.
"A sense of uncertainty and worry about risks remain in the markets," Abe told the meeting, the second between the government and the BoJ since the June 23 referendum.
The premier also called on Finance Minister Taro Aso to keep a close watch on currency moves and respond flexibly to market developments in co-ordination with Group of Seven (G-7) economies.
Abe is expected to hold similar meetings regularly as Tokyo looks to put safeguards in place against potential instability in financial markets after Britain’s messy EU divorce.
The rush of money to safe havens such as the yen has been stoked by the fear that Brexit would adversely affect Britain’s economy and undermine already fragile growth in the EU, causing more disruption in global investment and trade.
Forex intervention, BoJ stimulus
Japan stepped up threats to intervene to weaken the yen after the Brexit vote drove the currency to multiyear highs, but the risks of a costly failure may dissuade policy makers from matching their words with action.
Still, Masahiko Shibayama, an adviser to the premier, said unilateral yen-selling intervention could not be ruled out to counter excess speculation, adding that the central bank should stand ready to expand its already massive monetary stimulus.
"We won’t hesitate to take action against excess speculation," he told Reuters in an interview.
The dollar firmed to ¥102.63 on Wednesday, moving away from a two-and-a-half-year low of ¥99.00 touched on Friday.
Former top BoJ economist Hideo Hayakawa told reporters the central bank could be forced into further easing at the July 28-29 policy meeting given prices were undershooting its forecasts. However, he shrugged off speculation about the BoJ holding an extra policy meeting before that.
The BoJ is wary of rushing into expanding its monetary stimulus, preferring to wait and see if the market turmoil lasts long enough to threaten Japan’s economic recovery, sources say.
Hence, analysts expect Abe’s meetings to be more a symbolic move to show the public the government is doing what it can to contain damage ahead of a July 10 upper house election in Japan.
"There’s not a lot of policy tools left for authorities to reboot the economy. Therefore, Abe has no choice but to hold meetings one after another at least until the July election," NLI Research Institute chief economist Yasuji Yajima.
"If the yen spikes beyond ¥100 to the dollar, authorities would intervene in the currency market but I doubt whether it could have a lasting impact," he said.
Japan’s economy expanded at the fastest pace in a year in the first quarter but analysts say growth will not pick up much for the rest of this year as slow wage gains weigh on consumption. External challenges, such as weak emerging-market demand and the yen’s gains, also cloud the outlook for exports.
Worried about the additional hit from Brexit, the government is willing to spend at least ¥10-trillion on a stimulus package, sources have told Reuters.
Reuters
Japanese Prime Minister Shinzo Abe (left) addresses a meeting of the economy and fiscal policy council at his office in Tokyo on Thursday. Picture: REUTERS
TOKYO — Japanese Prime Minister Shinzo Abe pledged on Wednesday to use all available policy tools to keep the wheels of the economy turning as financial markets were gripped by uncertainty in the wake of Britain’s shock vote to exit the EU.
The yen’s spike following the referendum has kept Japanese policy makers on edge as a stronger currency threatens to put more pressure on the export-reliant economy, already reeling from weak demand at home and abroad.
Retail sales fell more than expected in May, data showed earlier in the day, keeping policy makers under pressure to roll out more stimulus.
"Consumer spending has been stagnant and the trend is likely to continue for a while due to sluggish growth in wages," Mizuho Research Institute senior economist Hidenobu Tokuda said.
In a meeting to discuss post-Brexit market developments, Abe urged Bank of Japan (BoJ) governor Haruhiko Kuroda to ensure the central bank provided ample funds to the market to prevent any credit squeeze.
"A sense of uncertainty and worry about risks remain in the markets," Abe told the meeting, the second between the government and the BoJ since the June 23 referendum.
The premier also called on Finance Minister Taro Aso to keep a close watch on currency moves and respond flexibly to market developments in co-ordination with Group of Seven (G-7) economies.
Abe is expected to hold similar meetings regularly as Tokyo looks to put safeguards in place against potential instability in financial markets after Britain’s messy EU divorce.
The rush of money to safe havens such as the yen has been stoked by the fear that Brexit would adversely affect Britain’s economy and undermine already fragile growth in the EU, causing more disruption in global investment and trade.
Forex intervention, BoJ stimulus
Japan stepped up threats to intervene to weaken the yen after the Brexit vote drove the currency to multiyear highs, but the risks of a costly failure may dissuade policy makers from matching their words with action.
Still, Masahiko Shibayama, an adviser to the premier, said unilateral yen-selling intervention could not be ruled out to counter excess speculation, adding that the central bank should stand ready to expand its already massive monetary stimulus.
"We won’t hesitate to take action against excess speculation," he told Reuters in an interview.
The dollar firmed to ¥102.63 on Wednesday, moving away from a two-and-a-half-year low of ¥99.00 touched on Friday.
Former top BoJ economist Hideo Hayakawa told reporters the central bank could be forced into further easing at the July 28-29 policy meeting given prices were undershooting its forecasts. However, he shrugged off speculation about the BoJ holding an extra policy meeting before that.
The BoJ is wary of rushing into expanding its monetary stimulus, preferring to wait and see if the market turmoil lasts long enough to threaten Japan’s economic recovery, sources say.
Hence, analysts expect Abe’s meetings to be more a symbolic move to show the public the government is doing what it can to contain damage ahead of a July 10 upper house election in Japan.
"There’s not a lot of policy tools left for authorities to reboot the economy. Therefore, Abe has no choice but to hold meetings one after another at least until the July election," NLI Research Institute chief economist Yasuji Yajima.
"If the yen spikes beyond ¥100 to the dollar, authorities would intervene in the currency market but I doubt whether it could have a lasting impact," he said.
Japan’s economy expanded at the fastest pace in a year in the first quarter but analysts say growth will not pick up much for the rest of this year as slow wage gains weigh on consumption. External challenges, such as weak emerging-market demand and the yen’s gains, also cloud the outlook for exports.
Worried about the additional hit from Brexit, the government is willing to spend at least ¥10-trillion on a stimulus package, sources have told Reuters.
Reuters
