Japan scrambles to shore up economy

Government injects billions into shaken markets in a bid to allay investor concerns amid worsening nuclear crisis.

    The government is struggling to keep the economy afloat amid catastrophic disaster along the Pacific coast [EPA]

    Kaoru Yosano, Japan's economics minister has said that the government and the Bank of Japan (BOJ) must strive to ease the public and investors' anxiety, after Japanese stock prices tumbled following the devastating tsunami that hit the country's Pacific coast last week.

    "There is no doubt that the government and the BOJ need to make efforts to ease anxiety among the public and investors," he told reporters on Tuesday.

    His comments come as the BOJ pumped billions of dollars into the country's financial system to quell fears that the country's banks could be overwhelmed by the impact of the massive earthquake and tsunami, while stocks slumped amid fears of a possible nuclear crisis.

    Two cash injections came a day after the BOJ fed a record $184bn into money markets and eased monetary policy to support the economy in the aftermath of the disaster.

    The injections have helped stabilise currency markets. But stock markets dived for a second day.

    The benchmark Nikkei 225 stock average slid more than 12 per cent after prime minister Naoto Kan warned residents near a damaged nuclear power plant in the country's northeast to stay inside or risk getting radiation sickness.

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    The BOJ has also moved to try to keep financial markets calm. By flooding the banking system with cash, it hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds.

    But financial analysts say the central bank's moves to bolster liquidity could put pressure on Japan to raise interest rates, particularly since the country is saddled with massive debt that, at 200 per cent of gross domestic product, is the biggest among developed nations.

    Vincent Tsui, an economist at the Standard Chartered Bank in Hong Kong, told Al Jazeera that the economic impact of the disaster will be felt across Asia.

    "Because of the close linkage of trade, the possible nuclear crisis that is unfolding will have a great impact on the economies of the region," he said.

    On Monday, the central bank's nine-member policy board also voted unanimously to ease monetary policy. It will expand the size of an existing programme to buy assets - such as government and corporate bonds - by $486.4bn.

    It kept its key interest rate at virtually zero.

    Billions of dollars are also expected to be needed to rebuild homes, roads and other infrastructure requiring public spending that will benefit construction companies but add to the national debt.

    The economy will eventually get a boost from reconstruction but "this does not mean that Japan is better off," Julian Jessop, chief international economist at Capital Economics in London, told the Associated Press.

    It is a quirk of accounting that destruction of assets is not counted as a reduction in the economy but replacement of those assets boosts economic activity, he said.

    SOURCE: Al Jazeera and agencies


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