Bank Of Japan Remains Inscrutable Over Stimulus Measures

By: Mike Campbell
Although the Japan was amongst the first to emerge from recession, things are still far from perfect in the world’s second largest economy. Unemployment is at an historically high level; consumer confidence is low; deflationary pressure is strong; the Nikkei is lagging behind other indices and the Yen remains strong; putting a strain on Japanese exports. Against this background, the Bank of Japan has decided to maintain interest rates at 0.1%, a move that was widely expected. However, analysts had expected to learn when the stimulus measures put in place by Japan would be withdrawn, but the Bank of Japan gave no indication other than to state that the economy had started to pick-up. It is understood that the government view is that the measures need to remain in place, but the decision rests with the Bank.

China is the world’s third largest economy. Official trade figures for September have been interpreted as meaning that economies in the rest of the world are showing signs of recovery. Although Chinese exports fell by 15.2% for September (year-on-year) to $115.9bn; the decline was the smallest for nine months. Chinese imports also fell by their smallest amount since November 2008, declining by 3.5%.

The Chinese stimulus package was worth $596bn and exporters have been helped with several tax refunds and improved export credit insurance. The government has also pegged the value of the Yuan to the Dollar since July 2008 which has supported Chinese exports as the Greenback has fallen.

The Asian development bank has predicted that the Chinese economy will actually grow by 8.2% in 2009, but it offered a general caution that “This is not the time for an exit from expansionary policies - the recovery remains fragile and subject to serious downside risks." The bank also predicted that the Indian economy would grow by 6% this year.