Newspaper article International Herald Tribune

Nikkei Sinks Again amid Doubts on Recovery ; Bank of Japan Minutes Disclose Questions about Viability of Inflation Goal

Newspaper article International Herald Tribune

Nikkei Sinks Again amid Doubts on Recovery ; Bank of Japan Minutes Disclose Questions about Viability of Inflation Goal

Article excerpt

Minutes from a recent board meeting of the Japanese central bank show that members had questions about the viability of its inflation goal.

The Japanese central bank released minutes of a recent board meeting Monday that showed some members skeptical of the bank's own strategy of lifting Japan from deflation, while another big fall in the country's stock market stoked fears of further volatility in the weeks and months ahead.

But European stocks shrugged off the slide on the Japanese stock market and traded higher as a member of the European Central Bank board repeated that bank's commitment to low interest rates. Stock markets in Britain and the United States were closed for public holidays.

In Tokyo, the minutes of the Bank of Japan's policy meeting on April 26 revealed a degree of doubt about its ability to inject a healthy dose of inflation into an economy that has suffered from crippling deflation for years.

"A few members" pointed out that the target of 2 percent inflation appeared "difficult to achieve" in the planned time of about two years from now, "since it was highly uncertain whether changes in inflation expectations would lead to a rise in the actual rate of inflation," according to the minutes.

Some board members also noted that the bank's aggressive policies appeared to have been perceived by the markets as "contradictory." On the one hand, the bank has committed to ending deflationary expectations and sparking an economic recovery by flooding the economy with money, a logical result of which would be rising long- term interest rates.

But on the other hand, it has committed to keeping those interest rates in check, partly by buying large amounts of government bonds. That has sowed confusion among market players over whether they should welcome or panic at the recent rise in long-term rates.

On Monday, the Nikkei 225 share average in Tokyo fell 3.2 percent. That followed a 7.3 percent slump Thursday, when a rally of about 80 percent since mid-November came to an abrupt end. Among the big losers, Nissan Motor dropped 6.8 percent, Yamaha Motor was off 7.9 percent and Sony slid 6.3 percent.

"While it's still difficult to clearly pinpoint a reason, the big market falls themselves have started to stoke fear among investors," Koichi Fujishiro, an economist at the Dai-ichi Life Research Institute, said in a report. …

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