International Herald Tribune, Tuesday, 8 August 1995



Is Japan Minting Its Way To Recovery?

Tokyo - Printing money to help spend one's way out of a tight spot is a policy economists associate with developing countries, not with an economic superpower such as Japan.

But the Bank of Japan has something in common these days with central banks in far poorer countries, several economists and analysts say.

This year, the Bank of Japan is minting yen to make it easier to sell Japanese goods overseas and keep the economy from slipping into a coma, they say.

"All you need to have recovery is money printing," said Richard Werner, chief economist at Jardine Fleming Securities. "That can be done very easily with the push of a button. In fact, it has begun."

The Bank of Japan denies it is printing more bank notes to pump up the economy. Demand for the currency, it says, will determine the number of bills it issues. "It 's very misleading to say we're printing money, "a central bank official said. "We're just more accommodating."

But BoJ watchers say it is not necessary to start counting coins to know the central bank is creating currency, They say it is obvious for two reasons: First, the bank has been buying more Japanese government bonds, and second, it has been buying lots of U.S. dollars.

Both are ways to put more yen into the market without having to persuade someone to borrow it first. Both result in reducing the yen's buying power, an effect better known as inflation.

Unlike many developing countries, however, Japan could use a little inflation. Prices are falling. In fact they are falling so much - private economists say deflation could be running as high as 2 per cent - that Japanese manufacturers are losing business to low-priced imports.


The central bank surprised the bond market Monday by buying 200 billion yen ($2.2 billion) in long-term bonds - more than double the amount it bought each month in the first half of the year.

Buying bonds is one of the few remaining means the BoJ has to inject yen into the market. The BoJ's discount rate is now higher than the money-market rate, meaning it does not make sense to borrow from the central bank.

The central bank also has been using some of its freshly minted yen to buy dollars. Last month, the central bank's foreign exchange reserves rose $1.36 billion, to a record $158 billion. Currency traders say the central bank snapped up much more - as much as $10 billion in US currency. No one knows the exact figure because the bank refuses to comment on its foreign exchange activities.

A weaker yen is good news for investors buying stocks, because it means stock prices should rise regardless of the relative performance of the economy or corporate profits.

"If share prices go up, it's because they're printing more money," said Osamu Yamazaki, who manages Japanese stocks and bonds for Cigna International Investment Advisors Ltd. in Tokyo.