Thursday, 18 March 2010

BoJ boosts loan facility

There were more signs on Wednesday that the Japanese economy is recovering. From Bloomberg:

Japan’s demand for services rose the most in more than a decade in January, adding to evidence that the export-led recovery is starting to benefit households.

The tertiary index, which captures 63 percent of the economy, advanced 2.9 percent from December, marking the first increase in three months, the Trade Ministry said today in Tokyo. The median forecast of 20 economists surveyed by Bloomberg News was for a 1.3 percent gain.

Nevertheless, the BoJ has decided to inject yet more money into the economy. AFP/CNA reports:

Japan's central bank doubled the amount of cash it would make available to banks Wednesday while keeping interest rates at a record low as it tries to kickstart a stuttering economic recovery.

Under government pressure to help fight deflation, the Bank of Japan said it would extend emergency steps taken in December by boosting its short-term loan facility to 20 trillion yen (US$220 billion).

The facility offers three-month loans at 0.1 per cent against collateral such as government bonds and corporate debt. However, the bank surprised markets by not extending the loan duration to at least six months...

The BoJ held its benchmark interest rate unchanged at 0.1 per cent, a level it has kept since December 2008, the height of the global financial market meltdown.

Signs of deflation on Wednesday mainly came from elsewhere though.

In the US, producer prices fell in February. Bloomberg reports:

Wholesale prices in the U.S. fell in February more than anticipated, led by a drop in fuel costs and signaling there are few inflation pressures building in the early stages of the economic recovery.

The 0.6 percent decrease in prices paid to factories, farmers and other producers was the biggest since July and followed a 1.4 percent January increase, according to figures from the Labor Department in Washington. Excluding food and fuel, so-called core prices climbed 0.1 percent.

And in the euro area, construction output fell in January. Again from Bloomberg:

European construction output fell the most in more than a year in January, led by declines in Germany and Spain.

Construction in the 16-nation euro region dropped 2.2 percent from December, when it decreased 1 percent, the European Union’s statistics office in Luxembourg said today. That is the biggest decline since December 2008. Euro-area labor costs rose 2.2 percent in the fourth quarter from a year earlier, the slowest growth in more than four years, a separate report showed.

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