The BoJ said, “another extension might become necessary if the Bank’s judgment was that the situation had not improved sufficiently.” The need for the bank to extend the effective periods of these unconventional measures should be again considered without any predetermined view.
On July 15, the Policy Board unanimously voted to hold the key rate at 0.1% and extended the overnight purchases of commercial papers and corporate bonds to December 31 from September 30.
As financial conditions remained generally tight, members agreed that effective periods of easing measures should be extended to facilitate corporate financing. Meanwhile, some members said further improvement in the situation would justify termination of these measures or a review for possible revision at the year-end.
Some members said these fund supplying activities might cause side effects such as the fall of issuance rates on CP with high ratings below yields on government bills. However, a review or exit of these measures should be decided based on not only their impact on financial markets and side effects, but also consider progresses in and the impact on financial markets and corporate financing as a whole.
In a conference held on August 8, BoJ Governor Masaaki Shirakawa said it would be important to have an appropriate built-in exit mechanism from the extraordinary measures, once market functioning recovers. He said extraordinary measures are only justified when markets, if left untouched, deteriorate, resulting weakening of the financial conditions and cause serious damage to the economy.
The tertiary index rose 0.1% in June from May compared to a 0.3% decline in May, data from the Ministry of Economy, Trade and Industry showed. The main sectors that contributed to the growth were scientific research, professional and technical services, finance and insurance, medical, health care and welfare and miscellaneous services.
BNP Paribas economist Hiroshi Shiraishi said a robust recovery for the tertiary sector is unlikely for the time being.
The economist said the effects of fiscal stimulus will likely fade by year-end and downward pressures on domestic demand are sure to remain for the foreseeable future. This is because “corporations continue to cut costs and manufacturers still have to adjust their excessive employment and capital stock to reflect the reality of a reduced medium-term growth outlook and the end of the super weak yen”.
Elsewhere, BoJ’s monthly report on the Input-Output prices of the manufacturing industry showed that input prices in manufacturing grew 0.8%, following a 0.3% rise in June.
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