The Japanese central bank has said it will massively expand the country’s money supply to spur inflation as it strives to get the world’s third-largest economy out of its slump.

The Bank of Japan (BoJ) on Thursday vowed to achieve a 2% inflation target at “the earliest possible time”.

To do so, the central bank has launched “a new phase of monetary easing both in terms of quantity and quality” that will double the money supply, it said in a statement.

The new BoJ governor, Haruhiko Kuroda, has vowed to meet the inflation target within two years, heeding demands from the prime minister, Shinzo Abe, to once and for all end a long spell of deflation which has hindered investment and economic growth.

Abe’s government, which took power late last year, accused the previous central bank governor, Masaaki Shirakawa, of balking at undertaking bold enough monetary easing to get the economy back on track. The steps announced on Thursday under the first policy meeting chaired by Kuroda were in line with expectations and are likely to reassure jittery financial markets of Japan’s resolve to push ahead with its “reflationary” strategy.

The announcement pulled the Nikkei 225 stock average out of the red and sent the yen lower against the US dollar.

The BoJ will conduct money market operations to increase the monetary base by about ¥60tn to ¥70tn (£420bn to £490bn) a year. At the same time it plans to increase purchases of Japanese government bonds to total ¥50tn a year to encourage interest rates to decline, which it hopes will facilitate more lending.

The central bank is also extending the average remaining maturity of the bonds it purchases from three years to an average of seven years. Meanwhile, bonds with all maturities up to 40 years will be eligible for purchase.

As expected, the bank also extended the range of assets it can purchase, to include more risky real estate investment trusts and exchange-traded funds.

As part of the new strategy, the BoJ will end its current asset-purchasing programme, absorbing it into the future purchases of bonds, it said.

Answering concerns that the stimulus programme would further raise Japan’s public debt, the statement said that the government bond purchases would be “executed for the purpose of conducting monetary policy and not for the purpose of financing fiscal deficits”.

The BoJ will “examine both upside and downside risks to economic activity and prices and make adjustments as appropriate”, it said.

guardian.co.uk

Bank of England’s deputy governor says changes will bring stability

Posted by sysadmin | Posted on 30-03-2013

Category : Business

Tags: authority, back, bust, country, credit, england, financial, governor, news, paul tucker, regulators, stability, tucker, year

Overhaul of the FSA will put Britain’s central bank back in charge of financial stability, according to Paul Tucker

The radical shakeup of Britain’s banking watchdog, which takes effect this weekend, is essential is to avoid another financial crisis, according to a top Bank of England official involved in implementing the new regime.

Four years on from the crisis that threatened to bring down the UK’s financial system, the coalition’s dramatic overhaul of the City regulator will put Britain’s central bank back in charge of financial stability.

Paul Tucker, deputy governor of the Bank, said Threadneedle Street had a “historic mission” to prevent another collapse. Labour’s creation in 1997 of the Financial Services Authority (FSA) stripped it of that responsibility – but its return was a very good thing, he said.

Overlooked for the top job at the Bank last year, Tucker also acknowledged that the new setup, which formally begins on Monday, could itself need reviewing in the future.

Tucker told the Guardian that the institution was “in the business of stability”, but also keen on recovery.

“You lose stability and the costs are enormous. This country learned the hard way about the inflationary boom and bust and now learned the hard way about banking boom and bust. It mustn’t happen again.”

Putting the Bank back at the heart of oversight should help as “separating banking supervision from the lender of last resort is hazardous unless you grow an umbilical cord that connects the two”.

While banking supervision did not always need to be inside the central bank, communication was key, he said.

“I do think it’s essential that the connection is really close, and supervision and central banking grew apart in this country and they’re now being reconnected. Given where this country finds itself, that is a very good thing. It was always the historic mission of the Bank of England to look after stability.”

If the new system had been in place in 2006 – just before complex financial products turned so toxic that they locked up financial markets in a credit crunch – Tucker thinks regulators would have been “worried by the resurgence in credit growth throughout the west from 2004″.

It would also have worried about the ballooning market in credit default swaps and the booming securitisation industry. It would have intervened in wholesale markets and banks would have been required pump up their capital to make them safer in 2005 and 2006 – even then it might not have been enough to stop the crisis.

“I wouldn’t go so far as to say it would have stopped the boom but it would have made the bust a lot less bad,” said Tucker, who acknowledged that he helped to design the new system ripping apart the FSA, which shuts down on Sunday and puts the Bank of England back at the heart of ensuring the financial system is safe from speculative bubbles and spectacular busts.

It means the blame for any future financial implosions can be placed firmly at the doors of the Bank, which during the 2008 crisis argued it had bark without bite, as blame was shuffled around between Threadneedle Street, the FSA and the Treasury – though some would argue that even the Bank’s bark had been rather quiet.

A new financial policy committee (FPC) is being formed inside the Bank – it is the body that this week caused controversy by ordering banks to plug a £25bn capital shortfall. The Bank is also creating a new subsidiary, the Prudential Regulation Authority (PRA), to regulate the big banks. Tucker sits on the FPC and the board of the PRA. Meanwhile, a new Financial Conduct Authority is being spun out of the FSA to regulate the behaviour of the City.

Already though, the FPC, which has met on an interim basis since June 2011, has had a difficult birth. A reshuffle of its external members this week led some to wonder if its most outspoken members were being neutered. The requirement for banks to raise more capital saw the business secretary, Vince Cable, express concern about the impact on lending, while the smaller than expected size of the capital shortfall sparked speculation that the FPC had been leant on. The lack of detail about the requirements for each bank frustrated the City too.

The FPC, borrowing the words of the former Federal Reserve banker William McChesney Martin, will be able to “take the punch bowl away while the party is still going”. But Tucker admits it is hard to gauge whether attempts to impose sobriety on the system will be needed within five years or 20 years.

And then, such a move might be very unpopular. “Eventually there will be a moment when the bankers and the public are on the same side, opposing measures by the Bank of England, its financial policy committee, to slow the party down,” said Tucker.

“The biggest problem with stability is people forgetting and taking stability for granted,” he said. “I think the most important thing about the FPC is an institutional structure that says these 11 men and women will not forget.”

The Bank has published 17 indicators that will be used to look for bubbles. While Tucker notes “there is no indicator that will whisper the answer in our ear”, he cites a rapid growth in credit as one factor to watch closely.

The PRA, led by Andrew Bailey, will be able to use its judgment about each individual bank, which should be “fantastically rewarding” for the regulators. Boards, too, will need to provide leadership in setting a new cultural tone.

Nine months ago, when he was the frontrunner to replace Sir Mervyn King as governor, Tucker got caught up in the Libor-rigging scandal when exchanges between him and Barclays’ then boss, Bob Diamond (who was forced to quit), became the subject of scrutiny.

The appointment of the Bank of Canada chief Mark Carney as the next governor has led to speculation about the future of Tucker – whose five-year term as deputy governor for financial stability ends a year from now.

Speaking in his parlour-like office at the Bank of England, he is keener to focus on regulation regime changes rather than discuss his past or future. Asked if he intended to stay on, Tucker replied: “I am the deputy governor for financial stability. It’s been the most extraordinary privilege being in this room while the system has been completely redesigned.

“Whether I like it or not, I’ve been one of the architects of the new system. I think it can serve this country well.

“No system is perfect and it will eventually be found wanting and we will need to keep it under review and improve it from time to time. But I think it’s fit for purpose for now.”

Jill Treanor

guardian.co.uk

Kuroda says Japan debt unsustainable

Posted by sysadmin | Posted on 29-03-2013

Category : Business, World News

Tags: bank, debt, governor, growing, haruhiko, japan, kuroda, levels, sustainable, warns

The Bank of Japan’s new governor, Haruhiko Kuroda, warns that Japan’s growing debt levels are “not sustainable”.

More here: Kuroda says Japan debt unsustainable

Bank governor suggests splitting RBS

Posted by admin | Posted on 07-03-2013

Category : Business

Tags: bank, case, england, governor, king, mervyn, owned, royal, scotland, sir, splitting, state

Bank of England governor Sir Mervyn King says there is a case for splitting up state-owned Royal Bank of Scotland.

Visit link: Bank governor suggests splitting RBS

Bank of England ready to pump more cash into the UK economy

Posted by admin | Posted on 27-02-2013

Category : Business

Tags: committee, credit, governor, growth, increase, interest rates, mpc, quantitative easing

Deputy governor Paul Tucker told MPs he was open to more quantitative easing, depending on the outlook for growth

A top Bank of England policymaker hinted on Tuesday that he and most other members of the monetary policy committee (MPC) were prepared to inject further funds into the economy through the central bank’s policy of quantitative easing (QE).

Speaking to MPs on the Treasury select committee, deputy governor Paul Tucker said: “I remain open to doing more QE, depending on the outlook for demand and inflation.

“Nobody on the committee thinks that QE has reached the end of the road and that it is not a useful instrument any more. We stand prepared to do more, if we judge that necessary,” he said.

Challenging critics who have derided the positive effects of QE, Tucker said the MPC believed QE continued to benefit the economy and without it lending would be more restricted. “We are absolutely committed to supporting growth within the constraints of keeping inflation to its medium-term target.”

David Miles, a former City economist and external member of the MPC, told MPs he was prepared to allow inflation to rise further above its 2% target in the short term to support growth, though it was his view that prices would be unaffected by a further boost to QE.

Meanwhile in the US, Federal Reserve chairman Ben Bernanke strongly defended the Fed’s QE programme, which he said had been essential for the stock market’s recovery. “To this point, we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation,” Bernanke told the Senate banking committee.

The Fed is buying $85bn (£56bn) in bonds each month and has said it plans to keep purchasing assets until it sees a substantial improvement in the outlook for the labour market.

Tucker also admitted that cheap loans funded by the central bank were failing to reach small businesses, undermining a key policy to drive growth.

He said successive schemes designed to boost lending to small businesses had failed to reach their target after the majority of loans offered as part of the central bank’s £80bn funding for lending scheme went to homebuyers.

Forcing high street banks to accept negative interest rates when they deposit money with the central bank was another idea that was considered, he said.

Tucker, who lost out to the Canadian Mark Carney in the race to succeed Sir Mervyn King as governor of the Bank, said he favoured a plan to encourage major corporations, which are flush with cash, to offer loans in partnership with the central bank to bypass the ailing banking sector.

“I am worried, and this is a personal opinion, that the current battery of credit policies are not reaching small and medium-sized businesses at the moment,” he said.

Andrew Tyrie, chair of the Treasury select committee, said: “The lack of lending to SMEs is inhibiting economic growth in the UK. The MPC is right to be looking at additional tools, or changes to existing tools, that could help.”

Ray Boulger of mortgage adviser John Charcol said negative interest rates would result in losses for banks that kept money on deposit with the Bank of England, increasing the pressure to lend to private borrowers. He said the mortgage market would be a major beneficiary of any such action.

“This increases the likelihood of genuine cuts in 2 year fixed rates, with the scope for more cuts in longer term rates as well.”

However, the MPC is most likely to increase QE before adopting alternative policies. Threadneedle Street has pumped £375bn into the financial system over the last four years through QE and there is a growing expectation that the MPC will increase the amount to £400bn sometime in the spring. At the last meeting, three MPC members, including King, voted to increase QE by £25bn.

Most UK economic indicators have turned south in recent weeks, wiping out hopes that the UK would recover strongly after four years of intermittent low growth and recession. Many City economists believe the UK will avoid a triple-dip recession despite a 0.3% contraction in the last three months of 2012, though growth will remain weak. A recession is defined as two consecutive quarters of falling output.

The credit ratings agency Moody’s, which strippd the UK of its AAA credit status at the weekend, warned that growth will be low for at least three years, hampering the government’s ability to reduce the annual deficit.

Tuckers admission that small businesses were missing out on cheap loans follows figures showing that most of the initial funds from the funding for lending scheme have been snapped up by homebuyers.

The scheme, which was launched last year in a fanfare by the chancellor and King, has struggled to make an impact and has failed in recent months to reverse a slowdown in lending by banks.

The new scheme would involve corporations packaging loans to small businesses, possibly suppliers, as “working capital instruments” with the backing of the central bank.

Analysts said Tucker was floating ideas that may not come to fruition for more than a year, but gave markets analysts an insight into policymaking at the bank.

In a separation submission to the committee, the bank’s other deputy governor, Charles Bean, said in a separate report to MPs that he expected the British economy to improve gradually, helped by an improvement in financial markets.

“At present, my expectation is that growth will gradually strengthen this year and next on the back of that, a further easing in credit conditions, and an improvement in the global environment. But downside risks remain, especially in the euro area,” he said.

Phillip Inman

guardian.co.uk