Bank of Japan pumps record funds into financial system

22 March 2011

The Bank of Japan (BoJ) has pumped record funds into Japan's financial system in an attempt to ease the economic tension caused by the recent earthquake and tsunami and to calm markets.

Policymakers have been injecting emergency money every working day since the natural disaster struck, Bloomberg reports.

Attempts to counter the country's biggest post-war disaster have seen the Group of Seven nations intervening in a coordinated effort to weaken the yen.

Lenders' deposits with the central bank are expected to swell 146 per cent - leaping from 17.7 trillion yen ($218 billion) yesterday (March 21st) to reach 43.6 trillion yen today.

Liquidity has now surpassed the 36.4 trillion yen recorded in March 2004.

At this time, the central bank was attempting to battle against deflation by opting for quantitative easing measures.

Researcher at Totan Research Toshiaki Terada said: "The BoJ is firmly sticking to its promise of pumping a massive amount of cash into the banking system."

The expert added: "Even though Japan’s money market is already flooded with cash, there is still the risk that cash demand from lenders will suddenly surge."

Hiroshi Watanabe, an economist at the Daiwa Institute of Research in Tokyo, noted: "The central bank is trying to prevent any business failures that could be caused by a shortage of cash."

He explained that liquidity in the markets could be restricted if companies and individuals in Japan decide to hoard money as a reaction to the crisis.

The BoJ needs to pour extra funds into the system - as it is doing - in order to counter this, Mr Watanbe added.

Earlier in the week, the World Bank predicted that it would take around five years for Japan to rebuild following the earthquake and tsunami.

The organisation also claimed the country's gross domestic product is likely to remain stifled throughout mid-2011.

By Claire Archer

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