The Bank of Japan has eased its monetary policy in a bid to get the country’s economy moving again, as slowing global demand and increasing tensions with China damage the chances of a Japanese economy.
The BoJ decision has seen the Japanese Yen weaken against a basket of peers and Tokyo’s Nikkei stock exchange hit a four-month high after the decision was announced a month earlier than expected.
“We expect today’s decision … will help ensure that Japan’s economy resumes a sustainable growth path with price stability,” the BOJ said in a statement.
The continuing tension with China has caused investors to worry over the possible devastating economic impact that could emerge if the two nations take a military option in their respective bids to lay claim to disputed Islands in the China Sea.
In a sign of further escalation the Chinese Academy of International Trade – a branch of the commerce ministry- said that China should use its power as Japans largest creditor of bonds to impose sanctions on Japan and force a fiscal crisis on Tokyo. Writing in a Communist newspaper Jin Baisong from the academy called on China to invoke a security exception rule under the World Trade Organisation act in a bid to punish Japan. He rejected arguments that a trade war between the two nations would prove to be mutually destructive.
Mr Jin said China can afford to sacrifice its “low-value-added” exports to Japan at a small cost. By contrast, Japan relies on Chinese demand to keep its economy afloat and stave off “irreversible” decline.
“It’s clear that China can deal a heavy blow to the Japanese economy without hurting itself too much,” he said. It is unclear whether he was speaking with the full backing of the Politburo or whether sales of Japanese debt would do much damage. Ironically such a move could be of benefit to the Bank of Japan who could counter the move with bond purchases and any weakening of the Yen would be welcome.
Anti-Japanese protests are continuing to spread throughout China with reports estimating that demonstrations have now taken place in 85 cities across the country.
Christian Le Miere from the International Institute for Strategic Studies said the crisis had become dangerous, citing Mao Zedong’s aphorism from 1930 that “a single spark can start a prairie fire”.
He said the region is “rife with historical enmity and chauvinism”, encouraged by Tokyo’s “seeming lack of contrition for wartime atrocities” and China’s own well-nurtured narrative of humiliation by foreigners.
US defence Secretary Leon Panetta has called for restraint from both sides and warned that provocation over the islands could get out of control and lead to conflict.
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