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Japan’s financial world and BOJ Governor Haruhiko Kuroda were very upset after Wednesday’s fall of industrial production. Instead of growth against previous month by 1%, it was a decline by 0.5%. Economists reacted very quickly – assessments on GDP growth for the third quarter were cut. But there is an opinion that it will be the second quarter fall in a row that leads to a technical recession. It may happen the second time for Japan in last two years.
Fall of previous year was initiated by consumption tax rise. Fall of current year was initiated by low export with China and other countries, with no outlooks to recover. Economists gave an opinion that ration between reserves and supplies reached 29-months maximums. It seems that offer prevails over demand, making companies cut their production.
Now Kuroda has a time to think about his further decisions. He has also made a great contribution to support economy. BOJ can increase rate of asset purchase by 80 trillion yen a year or $668 billion, what can be happened only by state bonds in 90% from the whole emission.
However, pressure on Kuroda still increases. It is likely that at the next meeting in October it will be expanded stimulation programme.
If purchase of state bonds is not increased, it will be possible an option with increase of terms to repay existing holdings. Cons of this option are that it won’t be assessed by markets as favourable.
The best option will be gradual purchase of assets. Purchase of ETF could be increased by 2-3 times from current 3 trillion yen a year. This step will be very satisfactory for investors.
Kuroda is still optimistic, and there is no reason to print money. But remembering previous autumn, after such optimistic statements on Japan’s economic outlook, government has made additional softening that caused shock for markets.