Duking it out

 

Advertisement

Japan took a one-two punch at its economic troubles Monday, announcing a move to shore up the yen and another round of stimulus spending.

The Bank of Japan started the ball rolling with the news that it would make more money available to banks under a low, fixed rate -- about a third more than is currently in circulation, jumping a lending facility to $351 billion. A second special lending program would be added and the bank, to top it off, said it would keep its overnight bank-to-bank lending rate at 0.1 percent.

Shoring up the yen, of course, means diluting the yen, which has risen to 15-year highs in recent months, cutting into margins for exporters. Japan, until recently the second largest economy on the world, is largely dependent on export markets -- no news there. Unlike the Chinese economy that surpassed Japan's this summer, however, there is little call for businesses to lean on the domestic market. In Japan, people already have cars, radios, flat screen televisions and microwave ovens. The domestic market cannot act like a pressure valve, absorbing business when international markets take a holiday from shopping.

The second move in the combination came from Prime Minister Naoto Kan, who said the government would assemble a new round of stimulus spending, which is, point of fact, the aim to boost domestic consumption. But analysts said the stimulus plan is a jab, not a knock-out punch.

Asian markets responded with gains across the board. The Nikkei 225 index in Japan added 1.76 percent Monday while the Shanghai composite index in China rose 1.61 percent. The Hang Seng index in Hong Kong rose 0.68 percent while the Sensex in India gained 0.19 percent. In South Korea, the Kospi index added 1.8 percent while the TAIEX in Taiwan added 0.24 percent.

In Australia, the S&P/ASX 200 rose 1.89 percent.

Markets were mixed in Europe in midday trading. The FTSE 100 in Britain rose 0.89 percent while the DAX 30 in Germany added 0.65 percent. The CAC 40 in France fell 0.54 percent. The DJ Stoxx 50, a pan-European blue-chip index, rose 0.57 percent.

From a recent high of 83.60 against the U.S. dollar, the yen, meanwhile, traded at 84.81 per dollar, compared to 85.36 on Friday. The euro traded at 107.91 yen compared to 108.72 yen Friday.

One analyst said it wasn't enough.

"In our view, this will not be the last easing. If the economic outlook and market conditions get worse, the Bank of Japan will likely announce some additional easing measures," Masaaki Kanno an economist at JPMorgan Securities Japan, said in an advisory note Monday, The New York Times reported.