Commodities Soar on Bank of Japan's Credit Commitment

Commodities are soaring today, especially gold and silver, in the wake of news that the BOJ will Provide 10 Trillion Yen in Emergency Credit.
 

The Bank of Japan said it’s ready to pump more money into the financial system after unveiling a 10 trillion yen ($115 billion) program to help an economy battered by falling prices and the yen’s surge to a 14-year high.

“If there is a shortage of liquidity we are prepared to provide more funds,” Governor Masaaki Shirakawa said after an emergency board meeting in Tokyo today that decided to offer three-month loans at 0.1 percent to commercial banks.

Bond yields fell the most in 13 months, lowering borrowing costs for companies whose profits are being threatened by deflation and the yen’s advance. Today’s action constitutes “quantitative easing in the broad sense” said Shirakawa, who earlier today faced demands from government ministers to complement a stimulus package that Prime Minister Yukio Hatoyama will release this week.

“The BOJ was facing a lot of pressure from the markets and the government, so it wanted to show that it was being proactive,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The BOJ’s understanding is that deflation risks have increased.”

Unlike the unlimited lending facility, which required private-sector debt as collateral, the bank will accept a wider range of assets including government bonds as well as debt issued by local governments. The program has no time limit.

The measure will “further spread the strong effect of monetary easing and encourage a further decline in longer-term interest rates in the money market,” the central bank said.

Prime Minister Hatoyama welcomed the decision.

“I’m very happy that the BOJ and government share the same view” on the economy, said Hatoyama, who is scheduled to meet with Shirakawa tomorrow. “I applaud their efforts to show their resolve to stop deflation and spur the economy.”

BOJ Spawns Speculation and Carry Trades

While correlation isn't the same as causation, I'd suggest that a new round of “quantitative easing" by the BOJ would likely fuel further speculation in commodities and various carry trades.

One thing that QE is not going to do is help Japan out of its mess.

Japan's Public Debt Nightmare

Japan' public debt is 170 percent of GDP, the highest in the G20. Increased debt is all that has been accomplished by Keynesian silliness and Monetarist nonsense.

Over 10 years ago, the advice from Greenspan and the Fed to Japan was to write off the debts so that a recovery could begin. Japan did not do so and now has a dramatically escalating government debt to GDP problem, virtually guaranteed to blow sky high.