Wednesday, October 6, 2010

Experts Look To Fed For New Round Of Debt Purchase

Japanese cut of key rate to near zero surprised bankers, may spur Fed

New York – United States economic factors show signs of cooling and slowing as Japanese indicators sputtered and faltered last month.

In a surprise move, the Bank of Japan's nine-member policy board cut the overnight call rate to zero from a previous target set in December 2008 of 0.10 percent. The rate has not been that low in 4 years. It matches a near-zero stint that lasted five years starting in 2001.

Recent numbers have shown deteriorating export, a slowing of industrial production after authorities intervened last month to weaken the yen, a move with a short impact that made Japanese lawmakers call on the Bank of Japan for more help. The word is the Japanese are looking to establish a trillion-yen fund to buy up debt with Central bank funds. This plan would go hand in hand with a 5-trillion-yen stimulus package.

The move resembles a play from Federal Reserve Chairman Paul Bernanke's book, that of cutting the rate to near zero, then buying securities to stimulate economic indicators.

With the key rate sitting at near zero since 2008, Mr. Bernanke starting sending signals Monday that his is favoring a return to buying mortgages and securities in an effort to stimulate programs designed to make loans cheaper and easier to get.

At the next meeting of the Federal Reserve Board, scheduled for election day on Nov. 2-3, financial wizards are looking for a new round of debt buying, starting with a $100 billion effort.

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