Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Japan's Abe pledges broad policy support to weather Brexit shock

Published 06/29/2016, 05:23 AM
Updated 06/29/2016, 05:23 AM
© Reuters. Japan's Prime Minister Shinzo Abe arrives at his official residence for attending a meeting of relevant cabinet ministers to discuss Britain's exit from the European Union, in Tokyo, Japan

© Reuters. Japan's Prime Minister Shinzo Abe arrives at his official residence for attending a meeting of relevant cabinet ministers to discuss Britain's exit from the European Union, in Tokyo, Japan

By Tetsushi Kajimoto and Leika Kihara

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe pledged on Wednesday to use all available policy tools to keep the wheels of the economy turning as financial markets were gripped by uncertainty in the wake of Britain's shock vote to exit the European Union.

The yen's spike following the referendum has kept Japanese policymakers on edge as a stronger currency threatens to put more pressure on the export-reliant economy, already reeling from weak demand at home and abroad.

Retail sales fell more than expected in May, data showed earlier in the day, keeping policymakers under pressure to roll out more stimulus.

"Consumer spending has been stagnant and the trend is likely to continue for a while due to sluggish growth in wages," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

In a meeting to discuss post-Brexit market developments, Abe urged Bank of Japan (BOJ) Governor Haruhiko Kuroda to ensure the central bank provides ample funds to the market to prevent any credit squeeze.

"A sense of uncertainty and worry about risks remain in the markets," Abe told the meeting, the second between the government and the BOJ since the June 23 referendum.

The premier also called on Finance Minister Taro Aso to keep a close watch on currency moves and respond flexibly to market developments in coordination with Group of Seven economies.

Abe is expected to hold similar meetings regularly as Tokyo looks to put safeguards in place against potential instability in financial markets after Britain's messy EU divorce.

The rush of money to safe havens such as the yen has been stoked by fear Brexit would adversely affect Britain's economy and undermine already fragile growth in the EU, causing more disruption in global investment and trade.

FX INTERVENTION, BOJ STIMULUS

Japan stepped up threats to intervene to weaken the yen after the Brexit vote drove the currency to multi-year highs, but the risks of a costly failure may dissuade policymakers from matching their words with action.

Still, Masahiko Shibayama, an adviser to the premier, said unilateral yen-selling intervention cannot be ruled out to counter excess speculation, adding that the central bank should stand ready to expand its already massive monetary stimulus.

"We won't hesitate to take action against excess speculation," he told Reuters in an interview.

The dollar firmed to 102.63 yen on Wednesday, moving away from a 2-1/2-year low of 99.00 touched on Friday.

Former top BOJ economist Hideo Hayakawa told reporters the central bank could be forced into further easing at the July 28-29 policy meeting given prices are undershooting its forecasts. However, he shrugged off speculation about the BOJ holding an extra policy meeting before that.

The BOJ is wary of rushing into expanding its monetary stimulus, preferring to wait and see if the market turmoil lasts long enough to threaten Japan's economic recovery, sources say.

Hence, analysts see Abe's meetings as more a symbolic move to show the public the government is doing what it can to contain damage ahead of a July 10 upper house election in Japan.

"There's not a lot of policy tools left for authorities to reboot the economy. Therefore, Abe has no choice but hold meetings one after another at least until the July election," said Yasuji Yajima, chief economist at NLI Research Institute.

"If the yen spikes beyond 100 to the dollar, authorities would intervene in the currency market but I doubt whether it could have a lasting impact," he said.

Japan's economy expanded at the fastest pace in a year in the first quarter but analysts say growth will not pick up much for the rest of this year as slow wage gains weigh on consumption. External headwinds, such as weak emerging market demand and the yen's gains, also cloud the outlook for exports.

Worried about the additional hit from Brexit, the government is willing to spend at least 10 trillion yen ($97.7 billion) on a stimulus package, sources have told Reuters.

© Reuters. Japan's Prime Minister Shinzo Abe arrives at his official residence for attending a meeting of relevant cabinet ministers to discuss Britain's exit from the European Union, in Tokyo, Japan

Latest comments

Ohhh... So *more* QE? Cool. More gold for me. Where's my wire?
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.