JAPAN MOVED to shore up its fragile economic recovery yesterday, with the central bank announcing an extra 10 trillion yen (€93.2 billion) in cheap, six-month financing, and the government outlining a Y920 billion package of stimulative measures.

The moves had been widely anticipated, however, and economists warned they fell far short of restoring confidence battered by slowing growth, the threat of a double-dip recession in the US and a rise in the yen.

Bank of Japan governor Masaaki Shirakawa returned early from a US visit to hold the policy board meeting that approved the new financing operation, an expansion of an existing Y20 trillion three-month scheme.

Prime minister Naoto Kan, whose leadership is being challenged from within his own party, praised the decision as a “swift action to cope with the economic situation”.

But markets were unimpressed. Tokyo’s Nikkei shares index climbed more than 3 per cent ahead of the BoJ announcement, but fell back to close up 1.8 per cent. After falling sharply to near Y85.88 to the dollar on news of the unscheduled policy board meeting, the yen rose on its result and in early trading in New York was trading at Y84.60.

After the yen hit a 15-year high of Y83.57 last week, Mr Kan and ministers stepped up efforts to talk the currency down to a level more comfortable for the exporters who drive economic growth.

In the outline of policies intended to boost growth, the administration promised to watch markets closely for “excessive movements” and to take “firm measures when necessary”.

The central bank had been widely expected to expand its financing operation at next week’s scheduled policy board meeting, and economists said the latest move would do little to address Japan’s problems.

“The economic impact will be negligible, and any impact on the yen will be diluted by the lack of a stated intention to weaken the currency or step up quantitative easing,” said Julian Jessop of Capital Economics.

Analysts say Japan’s financial system already has plenty of liquidity, with the main problem being a lack of creditworthy borrowers. Already-low interest rates and continuing price falls mean the BoJ move will do little to discourage the inflow of money seeking a refuge from stalling US growth. – (Copyright The Financial Times Limited 2010)