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POLITICAL ECONOMY
BoJ meeting expected to usher in fresh easing measures
by Staff Writers
Tokyo (AFP) Jan 22, 2013


Wen urges 'healthy' economy as China slows
Beijing (AFP) Jan 22, 2013 - Chinese Premier Wen Jiabao has urged the central bank to promote "healthy" economic development, the government said, after the economy expanded at its slowest pace for 13 years in 2012.

Speaking on a visit to the headquarters of the People's Bank of China, Wen called on the central bank to push financial reform and use monetary policy to support the economy, the government said in a statement late on Monday.

"Financial work is still facing a severe and complicated domestic and overseas environment," Wen was quoted as saying.

"We must make full use of monetary policy for the economy to realise continued healthy development," he said, adding prices should be kept stable.

China's economy, the world's second largest, expanded 7.8 percent last year, the government announced Friday, in the face of weakness at home and in key overseas markets.

The central bank last cut interest rates in July last year, and has instead used its open market operations to boost liquidity to support the economy as growth flagged in the second half.

Last week, the central bank said it would start carrying out short-term operations to manage liquidity in the money market, which analysts say will give policy-makers more flexibility.

Wen called for more financial reforms, including the long-held goals of further liberalising interest rates and making China's yuan currency freely convertible, but gave no details of such moves.

In June last year, the central bank gave banks more flexibility to set interest rates, effectively introducing greater competition and improving allocation of capital.

China last year also began allowing its tightly-controlled currency to trade in a wider band against the US dollar, on the long march for the yuan to become freely convertible.

But Wen also called for preserving financial stability, suggesting future reforms will continue to be incremental.

Wen is set to step down as premier in March, wrapping up a decade overseeing the government and economy.

Li Keqiang, a member of the ruling Communist Party's powerful Politburo Standing Committee, is touted to replace him amid hopes the new leadership might be more aggressive in promoting economic reforms.

The Bank of Japan wraps up a two-day policy meeting Tuesday with the under-pressure central bank widely expected to usher in fresh easing measures aimed at boosting the nation's limp economy.

The yen has been in a steep decline as markets bet the BoJ will inflate its 101 trillion yen ($1.13 trillion) asset-buying programme in what would be the first time in nearly a decade that the BoJ has expanded monetary policy after two consecutive policy meetings.

An expansion of the programme, the bank's main policy tool with rates near zero, would also be its fourth major move since September after the BoJ's US and European counterparts ushered in huge measures to battle slowing growth.

Japan's new government, led by the hawkish Shinzo Abe, swept to power last month on a pledge to fix the economy with big spending and pressure the BoJ into aggressive action to kickstart the world's third-largest economy.

Observers were also expecting the bank to set a two percent inflation target -- a key government demand -- in a bid to vanquish the deflation that has haunted the economy for years.

"Anything less and the markets would now be sorely disappointed," London-based Capital Economics said in a note.

But an expected 10 trillion yen boost to the programme, after an expansion of the same amount in December, "would be just an extension of what the BoJ has been doing and might not be enough to satisfy Prime Minister Abe", said Daisuke Karakama, senior market economist at Mizuho Corporate Bank.

Tensions have run high between BoJ policymakers and Abe's administration, with the 58-year-old premier having openly said he would like to turf out BoJ Governor Masaaki Shirakawa, whose terms ends in April, and threatening to change a law mandating the bank's independence if it does not fall into line.

Japan's new finance minister, Taro Aso, has also weighed in, accusing the bank last month of being "slow in its response to deflation".

On Monday, Bundesbank chief Jens Weidmann lashed out at the what he called government meddling in the affairs of central banks in industrialised nations such as Japan and Hungary.

"We are witnessing disturbing abuses, for example in Hungary or in Japan, where the new government is interfering massively in the affairs of the central bank, calling forcefully for a more aggressive monetary policy," said the top German central banker.

Aso, the BoJ's chief and economic revitalisation minister Akira Amari were reportedly to hold a rare joint press briefing on Tuesday.

Japan has been beset by deflation since the 1990s. It continues to hurt the economy as falling prices cut into corporate profits, leading firms to slash jobs and put off growth-generating capital investment.

It also dents demand because it encourages consumers to delay purchases in the hope of paying less later.

As part of its economic offensive, Tokyo has also unveiled a $226.5 billion stimulus plan with spending aimed at job creation, rebuilding areas hit by the 2011 quake-tsunami disaster and strengthening the military.

The policy meeting was due to start at 8:00 am (2300 GMT Monday). A press conference is expected later in the day.

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