Japan and Australia Take Steps to Revive Economy

Japan and Australia Take Steps to Revive Economy
By HIROKO TABUCHI and BETTINA WASSENER
Copyright by The New York Times
Published: April 7, 2009
http://www.nytimes.com/2009/04/07/business/global/07iht-rates.html?_r=1&ref=global-home


TOKYO — Japan’s central bank unveiled new steps to encourage lending and its counterpart in Australia cut its benchmark interest rate to the lowest level in nearly half a century Tuesday, highlighting concerns that the global economy remains in dire straits despite signs of a pickup in China and elsewhere.

Japan, in particular, is in a recession that economists say could be the worst since World War II, and both the government and the central bank have repeatedly stepped up their economy-bolstering efforts as the extent of the downturn has become clearer.

Prime Minister Taro Aso of Japan is expected to outline new stimulus measures this week that could be worth more than 2 percent of Japan’s gross domestic product, or $100 billion.

On Tuesday, the Bank of Japan left its benchmark interest rate unchanged at 0.1 percent but said it would accept loans on deeds to municipal governments as collateral from lenders. The move could help prop up regional banks, on which many of Japan’s smaller companies depend for loans.

Despite previous efforts by the central bank to loosen credit, companies said access to funds in March was the tightest in a decade, according to the central bank’s Tankan survey, which measures corporate sentiment.

“As the economy worsens substantially, banks are tightening their lending to control credit risk, and that’s causing companies to worry,” Masaaki Shirakawa, the Bank of Japan governor, told reporters. “Expanding the range of eligible collateral is meaningful in facilitating fund supply and ensuring financial market stability.”

Already burdened by weak domestic demand, Japan has also been hit hard by plunging exports — down by nearly half in the first two months of the year.

Data from Taiwan on Tuesday showed exports there, too, continuing to plunge: Exports in March were 35.7 percent below a year earlier, the seventh consecutive month of decline.

“Japan and Taiwan are the countries we are most concerned about in Asia, while the risk looks to be small and manageable for most other countries in the region,” said Robert Prior-Wandesforde and Frederic Neumann, economists at HSBC, in a quarterly assessment of the region released Tuesday.

The picture looks less grave in Australia, where the central bank’s governor, Glenn Stevens, said that considerable fiscal stimulus spending in the country “should help contain the downturn” over the rest of the year.

The comments came as the central bank cut its benchmark cash rate by a quarter percentage point to 3 percent, its lowest level since March 1960. Since September, the bank has cut the rate by a total of 4.25 percentage points.

“There are tentative signs of stabilization in several countries, including China, though it is too early yet to judge how durable these will prove to be,” Mr. Stevens said.

China stands out as one of the few major economies in the world to escape recession this year, thanks mainly to the government’s ability to deploy huge financial resources to bolster growth.

The pace of growth in China has slowed rapidly, and the World Bank last month lowered its 2009 growth forecast for the country to 6.5 percent.

But at the same time, the bank said China remained a “relative bright spot in an otherwise gloomy global economy.”

Recent data have solidified hopes that the Chinese economy may have bottomed out — a development that will be crucial for the rest of the world, notably the emerging economies in Southeast Asia.

On Tuesday, the World Bank said economic growth in the East Asia and Pacific region would likely reach 5.3 percent in 2009, down from 8 percent in 2008 and 11.4 percent in 2007.

But it said that as countries in the region — which includes China, Indonesia, the Philippines and Southeast Asia — prepared themselves for an expected surge in joblessness, “a ray of hope may be emerging with signs of China’s economy bottoming out by mid-2009.”

“A recovery in China — fueled largely by the country’s huge economic stimulus package — is likely to begin this year and take full hold in 2010, potentially contributing to the region’s stabilization, and perhaps recovery,” the World Bank added.

A closely watched purchasing managers’ index in China last week added support to the cautiously optimistic view on China. The index rose to 52.4 in March, from 49 the previous month. It was the first time since last September that the reading had risen above 50, which marks the dividing line between contraction and expansion — and it was the first in the world to return to expansionary territory. By contrast, the United States, Europe and Japan are still in the throes of a severe economic contraction, with the corresponding indexes in the United States at 31.4, in the European Union at 33.9 and in Japan at 33.8.

Bettina Wassener reported from Hong Kong, and Meraiah Foley contributed reporting from Sydney.