April 10, 2012 / 3:58 AM / 7 years ago

Instant view: Bank of Japan holds off on easing as expected

TOKYO (Reuters) - The Bank of Japan kept monetary policy steady, holding fire until a more thorough assessment of the economy at another rate review on April 27 that may show further action is needed to nudge inflation up towards its 1 percent target.



— As widely expected, the BOJ maintained its key policy rate at a range of zero to 0.1 percent by a unanimous vote.

— Governor Masaaki Shirakawa will hold an embargoed news conference with his comments expected to come out sometime after 4:15 p.m. (0715 GMT).

— The central bank kept its assessment of the economy roughly unchanged, saying that while economic activity has remained more or less flat it has shown signs of picking up.

— It announced details of a new dollar lending arrangement established as part of steps to boost Japan’s potential growth. Loans are offered at the six-month dollar LIBOR rate with a duration of a year and may be rolled over up to three times.


“The BOJ probably left monetary policy unchanged this time as the domestic macroeconomic environment is solid compared with that overseas, and it wants to see the effects of the easing steps it took in February.

“Judging from the BOJ’s economic assessment announced today, the chances are not necessarily high for the central bank to implement additional easing at its next policy meeting later this month.

“That said, there is an environment in which it would be easy for government pressure to increase, and the forex market is unstable. So market expectations for easing steps could rise depending on external factors and markets, and then the BOJ would probably have to ease policy.”


“It was reasonable that the BOJ decided to stand pat this time because there was little justification to act.

“It could move as early as the next meeting on April 27 by expanding the asset buying scheme by 5 or 10 trillion yen ($61-123 billion) and extending its deadline by half a year. It is unlikely to extend the maturity of bonds it can buy under the scheme.

“The BOJ may wait a bit longer to extend the scheme as such a measure would be aimed at giving it room to ease policy further and doesn’t have to come with its long-term price and growth forecasts.”


“The BOJ will face increasing pressure from politicians as well as markets on easing policy further towards April 27, when it is expected to forecast inflation will fall short of its goal of 1 percent even in the fiscal year to March 2014.

“The question now is not whether the BOJ could ease on April 27 but what the bank would do in taking further easing steps. A zero answer should not be an option. Inaction would upset politicians and disappoint markets, possibly sending the dollar below 80 yen.

“If the BOJ takes no action at the next meeting it would ruin market perceptions that the BOJ has become proactive in tackling deflation since its surprise easing on February 14.”


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— The BOJ surprised markets in February by boosting its asset buying scheme by 10 trillion yen ($122.87 billion) and setting a 1 percent inflation goal, signaling a more aggressive monetary easing stance to beat deflation.

— It has been standing pat on monetary policy since then, preferring to save its limited options for later amid growing signs the economy is headed for a moderate recovery.

— The BOJ’s nine-member board has two vacancies. The government failed to submit a nominee in time for one, while a candidate it did propose was turned down by parliament, with legislators arguing he would not be aggressive enough about easing policy.

($1 = 81.3900 Japanese yen)

Reporting by Leika Kihara and Rie Ishiguro; Editing by Michael Watson

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