Japan boosts stimulus measures to spur growth
- 30 October 2012
- From the section Business
The Bank of Japan has boosted its key stimulus measure amid concerns that Japan's economic recovery may be running out of steam.
It has extended its asset purchase programme, under which it buys bonds to keep long-term borrowing costs down, by 11 trillion yen ($138bn; £86bn).
It will also offer unlimited loans to banks to encourage lending and boost domestic demand.
Analysts said the bank may need to take further measures to spur growth.
"The problem is not banks' ability to lend," said Masayuki Kichikawa, chief Japan economist as Bank of America Merrill Lynch in Tokyo.
"The problem is a lack of demand for loans due to deflation and a high exchange rate."
Japan has been fighting deflation, or falling prices, for many years, and the phenomenon has been a big hurdle in its attempts to boost domestic consumption.
While falling prices are good news for consumers, they are not so for the economy, as people tend to push back their purchases in the hope of getting a cheaper deal in the long run.
At the same time, a strong currency has also hurt Japanese manufacturers, making their goods more expensive for foreign buyers and hurting their profits.
The yen has risen by more than 6% against the US dollar since April 2011, despite interventions by Japanese authorities in the currency markets to weaken it.
Analysts said that a strong currency coupled with slowing demand from key markets meant that, despite a push by the central bank to boost lending, businesses were reluctant to borrow and increase their investment.