"Extraordinary Circumstances" Mode?


According to the FT, "In confident testimony before parliment".New BOJ governor Mr. Fukui indicated;


(1) he would consider broadening the range of assets it buys,
refering to the possible purchase of property-backed securities or exchange-traded funds, a proxy for
the stock market.


(2) he would look favourably on requests from politicians for the BoJ to raise the Y2,000bn limit on the amount of
shares it can buy from commercial banks.


(3) he even had some constructive words about inflation targeting...


All this appears to be a much more flexible attitude than those who had suggested he was "more of the same" (an extension of Mr. Hayami's policies)...
Granted, nearly all in the government, business leaders and academics have urged the BOJ to take aggressive monetary policy measures. Meanwhile, the Financial Services Agency hurriedly slapped together a six-point market stabilization plan , and while not considered to be that effective, was expected to be only the first in a series of expected government emergency countermeasures. Moreover, as stock prices were sliding below 8,000, the LDP's financial policy project team headed by Hideyuki Aizawa rushed to put together a package of countermeasures to be implemented within the month. While there may be more than a small degree of hot air being exchanged in these committee meetings, the import of the LDP's "emergency countermeasure" proposals is no less than a full-scale attempt to derail all of the "hard-liner" policies Mr. Takenaka has been trying to implement. The new proposals coming from these LDP committees include;


1. Delay implementation of the law that limits stockholdings of the banks to within their core capital. Currently effective from September 2004, the proposal is to postpone this for two years.
2. Extend the mandatory introduction of impairment accounting for assets from March 2006 to March 2008.
3. Temporarily suspend market value accounting.
4. Relax restrictions on corporate buybacks.
5. Extend the Equity Purchasing Corporation's charter by two years and relax its purchse conditions.
6. A 2-3 year delay in the Financial Revival Program's goal of reducing the ratio of non-performing loans for the major banks by half by 2004.


Not only that, but having the BOJ a) subscribe to bank capital increases, b) the use of public funds for non-performing loans, c) utilizing foreign exchange reserves, and d) expanding the amount of BOJ purchases of JGBs, is also being discussed (by the LDP committees). If the Koizumi Administration's platform of structural reforms is the "normal mode", the mindset of the government (LDP) at present is more like an "extraordinary circumstances" mode. True to form, the old-guard LDP is again trying to change the rules (i.e., reset all of the tough reforms) when the going gets tough. Some are even suggesting that the Japanese market would rally a couple of thousand points if Mr. Koizumi or Mr. Takenaka were to resign. However, similar "extraordinary circumstances" signals are coming from the FSA (stock price countermeasures) and now from Mr. Fukui –albeit with carefully measured words and no commitment to specific policies.