The Bank of Japan has responded to
government pressure to counter a strong yen by extending a multi-billion-dollar
loan programme, but the move has been viewed with disappointment by markets.
The decision came after an
emergency meeting was called in response to government pressure to try to curb
the yen’s rise and support an economy mired in deflation after the unit hit a
15-year high against the US dollar.
The central bank said it would
offer about $130 billion in six-month low-interest loans in addition to $260
billion of an existing three-month loan program that began in December.
Domestic financial institutions
will therefore be able to borrow a total of $392 billion from the central bank
for a maximum of six months against pooled collateral.
The move would help lower interest
rates in the market place with a view to easing the yen’s strength, said the
bank, which also left its key interest rate unchanged at 0.1 per cent.
A strong yen makes imports cheaper,
helping keep prices low and maintaining a damaging cycle of deflation, which
was again evident in July where core consumer prices eased 1.1 per cent, the
17th consecutive monthly fall.
Persistent deflation prompts
consumers to defer purchases in the hope of further price falls and deters
corporate capital spending.
Prime Minister Naoto Kan said he
would decide on the outline of a package of further stimulus measures Tuesday,
with one focus on helping new school graduates find jobs.