TOKYO - The Bank of Japan poured a record amount of cash into the financial system and doubled the size of its asset-purchase plan Monday to shield the economy from the effects of the nation's strongest earthquake on record.
The central bank pumped $183 billion into money markets Monday to assure financial stability amid a plunge in stocks and a surge in credit risk. Gov. Masaaki Shirakawa and his board enlarged a program buying assets from government bonds to exchange-traded funds by $61 billion, about one-tenth the size of the Federal Reserve’s quantitative easing.
Policy makers said they were concerned corporate and household sentiment would worsen, with production set to decline in the aftermath of the temblor and an ensuing tsunami. The Friday catastrophe killed an estimated more than 10,000 people, shut down factories, prompted rolling power cuts and sparked the risk of a meltdown at a nuclear power plant.
“The disaster will push down gross domestic product in the short run, and the BOJ wants to mitigate the deflationary impact through liquidity injections,” said Tomo Kinoshita, a Hong Kong-based economist at Nomura Holdings.
Japan’s currency, which initially climbed against the dollar, then retreated in the wake of the central bank’s cash injections, stayed lower after the policy decision. It traded at 81.95 as of 6:04 p.m. in Tokyo. Stocks stayed lower, with the Nikkei 225 Stock Average closing down 6.2 percent minutes after the announcement.
Manufacturers from Sony to Toyota closed plants Monday, with Sony, Japan’s biggest exporter of consumer electronics, halting operation at 10 factories and two research centers.
The BOJ chief told reporters that cash injections will continue as needed and that it is “crucial” the central bank stabilizes money markets, an indication it will take further steps in coming days.
Monday’s steps go beyond the forecast of analysts including Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co., who anticipated that the bank would limit its response to short-term liquidity provision.