Japan Readies ‘Massive’ Liquidity as BOJ Gauges Risk to Post-Quake Economy

The Bank of Japan may today inject more short-term cash into the banking system after the nation’s most powerful earthquake on record, while keeping its asset- purchase plans unchanged as officials gauge the longer-term effect on the world’s third-largest economy.

Governor Masaaki Shirakawa told reporters late yesterday he’s ready to unleash “massive” liquidity starting this morning in Tokyo, as the BOJ seeks to assure financial stability.

Economists said officials will likely decide to keep longer-term credit programs at a total of 35 trillion yen ($428 billion) when they meet today at 1 p.m. in Tokyo. The bank’s main interest rate has already been cut to almost zero as policy makers last year sought to end the nation’s deflation.

“Monetary policy will be unchanged, but they will probably pledge to provide ample liquidity,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo. Policy makers may also “establish an emergency lending facility to help financial institutions in Tohoku,” the northern region most damaged by the catastrophe, he said.

Shirakawa and his board could opt to accelerate asset purchases, including government bonds and exchange-traded funds, within the existing credit programs, particularly if the yen climbs and stocks tumble, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, who used to work at the central bank.