Cash still tight in Japan recovery
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Economics Minister Heizo Takenaka wants the Bank of Japan to boost money supply.
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TOKYO, Japan (Reuters) -- Growth in Japanese money supply remained slow in January and bank lending continued to decline amid sluggish private sector demand, despite growing signs of economic recovery.
The most widely watched measure of money supply -- M2 plus certificates of deposit (CDs) -- rose 1.6 percent in January from a year earlier, Bank of Japan (BOJ) data showed on Monday.
It rose 1.5 percent in December.
The central bank has attributed lackluster growth in the money supply mainly to a decline in demand for funds from companies as they continue to restructure, although technical factors such as a shift of funds to government bonds from deposits was expected to provide some support.
The BOJ has forecast that growth in the M2 plus CDs would hover around one percent in the January-March quarter.
In the January data, growth in CDs was positive for the first time since February 2002, mainly due to a rebound from steep falls the previous year, a bank official said.
On the other hand, growth in cash in circulation slowed to its lowest levels in over a decade, rising a mere 2.6 percent from a year ago.
Ryo Hino, an economist at JP Morgan in Tokyo, said that probably reflected receding fears of an imminent financial crisis.
Big banks have succeeded in cutting their bad loans and, helped also by a stock market rally, most look like posting profits in the year to March. That comes after they ran up huge losses in the two previous years that dented the confidence of depositors.
Some voices in government, notably Economics Minister Heizo Takenaka, believe the BOJ should take additional measures to boost the money supply, although he has not said how this should be achieved.
However, BOJ Governor Toshihiko Fukui argued last month against making money supply growth a short-term target of monetary policy.
He said the central bank was doing all it could to support corporate restructuring and help the banking system clean up its non-performing loans.
Last month, the BOJ unexpectedly eased its monetary policy further by boosting its liquidity target in a move Fukui said was aimed at bolstering the nascent economic recovery.
Separate BOJ data Monday showed that lending by Japan's banks -- the three main categories plus "shinkin" credit unions -- fell 4.6 percent in January from a year earlier, the 37th consecutive month of decline.
Lending by the three main categories of banks fell by 5.1 percent to 396.85 trillion yen ($3,745 billion), the 73rd straight month of falls.
BOJ said in its most recent economic report that the pace of decline in private sector demand for funds was moderating.
A bank lending survey conducted by the BOJ covering the three months to December showed signs of an increase in demand for funds by private corporations.
The diffusion index for fund demand rose to plus one for October-December, the first time there has been a positive reading since 2000. But the survey also showed that banks expected the index to fall back into negative territory in the future.
As such, policymakers do not expect the demand for funding to pick up rapidly and Fukui said on Thursday that the central bank would maintain its current easing stance even if more signs of an economic pick-up emerged.
Copyright 2004
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
