Once tried, it's never enough...
From the Wall Street Journal,
The Bank of Japan said Tuesday that it would stoke the economy with an additional ¥2 trillion ($24.32 billion) in lending, following a surprise monetary easing at its previous meeting, as it heightens its drive to rid the economy of deflation.
"We came up with the measure as part of a package" to deal with deflation along with the credit-easing move last month, BOJ Gov. Masaaki Shirakawa said at a news conference following a two-day meeting of the bank's policy board.
"Persistent efforts are needed to create growth potential and thereby defeat deflation," he said, adding the BOJ "will continue to do what it can," but that government, the financial sector and corporations must play a part.
Analysts said the remarks helped to reassure markets, showing that the BOJ appears resolved to help Japan recover from its long slump, and leaving the door open to further measures in the months ahead.
In Tuesday's actions, the BOJ will boost its high-growth-sector loan program by ¥2 trillion, to ¥5.5 trillion, and will make the money available for two additional years, to March 2014. The program, introduced in June 2010, provides loans to private banks for one year at a 0.1% interest rate to provide lending to 18 high-growth sectors, including renewable energy, medical treatment and nursing care.
As part of the total, the BOJ also will offer loans denominated in U.S. dollars worth ¥1 trillion, using existing foreign-currency assets held by the central bank. The BOJ holds an estimated ¥4 trillion in foreign currencies, separate from the government's foreign reserves.
Economists said the absence of further monetary easing was expected. At the February meeting, the bank surprised markets by expanding its asset-purchase program by ¥10 trillion, to ¥65 trillion, and moved closer to setting a clear inflation target of 1%.
This is another validation of my prediction that the Bank of Japan (BoJ) will increase stimulus from last month. This also exhibits that so called central bank independence is a myth.
Nevertheless, the Japan’s Equity Benchmark the Nikkei seems to “like” the policy. It is more that the banking and financial system, the recipients of BoJ’s new money, has channeled them into the equity markets.
As Murray N. Rothbard wrote of the policy induced Business cycle,
Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance, by repeated doses of the stimulant of bank credit. It is only when bank credit expansion must finally stop, either because the banks are getting into a shaky condition or because the public begins to balk at the continuing inflation, that retribution finally catches up with the boom. As soon as credit expansion stops, then the piper must be paid, and the inevitable readjustments liquidate the unsound over-investments of the boom, with the reassertion of a greater proportionate emphasis on consumers' goods production.
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