TOKYO:The Bank of Japan is expected to forego any further monetary easing at Tuesday, Sept 7 policy meeting, saving its limited firepower for when there is clearer evidence of the harm the strong yen has inflicted on the slowing economy.
After easing policy just last week, the nine-member board is seen keeping interest rates on hold at 0.1 percent and focusing on debating how recent yen gains and signs of weakness in the U.S. economy could affect the outlook for Japan's economy.
With the yen holding near a 15-year high against the dollar, the central bank stands ready to loosen policy further if the yen lurches upward at a pace of 1 to 2 percent in a single day and triggers currency intervention by the finance ministry.
Otherwise, the BOJ is in no mood to act in September and is lining up its options for next month, when it is seen revising down its long-term economic and price forecasts in a semiannual outlook report due on Oct. 28.
"If the markets are calm, the BOJ will try to stand pat for as long as possible," said Koichi Haji, chief economist at NLI Research Institute.
"The BOJ may act in response to government pressure in the future. But whatever more it will do won't have much positive effect on the economy, and I think the BOJ knows that."
SYMBOLIC GESTURE
The BOJ boosted its cheap loan scheme on Monday of last week, bowing to government pressure for steps to protect the fragile recovery after the yen surged to a 15-year high against the dollar the week before.
But the move did little to deter yen gains or stock price falls as investors saw it as a symbolic gesture with little effect in supporting the economy and beating deflation.
That has led some BOJ officials to believe that bolder action is needed to send a clearer message to markets that the bank is determined to keep the strong yen from harming the economy.
There is no consensus yet on what the next step should be, but the list of options includes a return to zero interest rates and an increase in the bank's government bond purchases.
The BOJ's fixed-rate, three-month fund supply operation on Monday attracted bids 4.37 times more than the volume offered, the lowest since the programme was put in place last December, signalling a waning appetite for cheap funds from banks already awash with excess cash.
Still, the BOJ is likely to hold off on easing policy on Tuesday to examine how last week's decision to expand its fund supply tool will affect markets and fund flows.
Japanese policymakers have tried to talk down the yen and threatened to intervene in the currency market after its surge to a 15-year high against the dollar.
The government has also piled pressure on the BOJ to ease policy, although the outlook is complicated by ruling Democratic Party powerbroker Ichiro Ozawa's decision to challenge Prime Minister Naoto Kan in a Sept. 14 party leadership vote.
It is uncertain whether Ozawa is more keen than Kan on pressuring the BOJ for further action but a close Ozawa aide told Reuters on Monday that the BOJ was doing too little to fight deflation.
Expectations of further monetary easing have pushed down the short end of Japan's bond yield curve, while the long end has been pushed up by speculation that Ozawa, if chosen to head the party, may take a more fiscal expansionary stance than Kan.
But the yield curve has flattened beyond the 10-year zone lately as investors hunting for bargains trimmed earlier losses in the superlong sector, suggesting that the recent sharp rise in yields may have started to peter out.
Market players are keen for clues on the outlook for monetary policy from Governor Masaaki Shirakawa's post-meeting news conference, with his comments due after 4:15 p.m. (0715 GMT). - Reuters
After easing policy just last week, the nine-member board is seen keeping interest rates on hold at 0.1 percent and focusing on debating how recent yen gains and signs of weakness in the U.S. economy could affect the outlook for Japan's economy.
With the yen holding near a 15-year high against the dollar, the central bank stands ready to loosen policy further if the yen lurches upward at a pace of 1 to 2 percent in a single day and triggers currency intervention by the finance ministry.
Otherwise, the BOJ is in no mood to act in September and is lining up its options for next month, when it is seen revising down its long-term economic and price forecasts in a semiannual outlook report due on Oct. 28.
"If the markets are calm, the BOJ will try to stand pat for as long as possible," said Koichi Haji, chief economist at NLI Research Institute.
"The BOJ may act in response to government pressure in the future. But whatever more it will do won't have much positive effect on the economy, and I think the BOJ knows that."
SYMBOLIC GESTURE
The BOJ boosted its cheap loan scheme on Monday of last week, bowing to government pressure for steps to protect the fragile recovery after the yen surged to a 15-year high against the dollar the week before.
But the move did little to deter yen gains or stock price falls as investors saw it as a symbolic gesture with little effect in supporting the economy and beating deflation.
That has led some BOJ officials to believe that bolder action is needed to send a clearer message to markets that the bank is determined to keep the strong yen from harming the economy.
There is no consensus yet on what the next step should be, but the list of options includes a return to zero interest rates and an increase in the bank's government bond purchases.
The BOJ's fixed-rate, three-month fund supply operation on Monday attracted bids 4.37 times more than the volume offered, the lowest since the programme was put in place last December, signalling a waning appetite for cheap funds from banks already awash with excess cash.
Still, the BOJ is likely to hold off on easing policy on Tuesday to examine how last week's decision to expand its fund supply tool will affect markets and fund flows.
Japanese policymakers have tried to talk down the yen and threatened to intervene in the currency market after its surge to a 15-year high against the dollar.
The government has also piled pressure on the BOJ to ease policy, although the outlook is complicated by ruling Democratic Party powerbroker Ichiro Ozawa's decision to challenge Prime Minister Naoto Kan in a Sept. 14 party leadership vote.
It is uncertain whether Ozawa is more keen than Kan on pressuring the BOJ for further action but a close Ozawa aide told Reuters on Monday that the BOJ was doing too little to fight deflation.
Expectations of further monetary easing have pushed down the short end of Japan's bond yield curve, while the long end has been pushed up by speculation that Ozawa, if chosen to head the party, may take a more fiscal expansionary stance than Kan.
But the yield curve has flattened beyond the 10-year zone lately as investors hunting for bargains trimmed earlier losses in the superlong sector, suggesting that the recent sharp rise in yields may have started to peter out.
Market players are keen for clues on the outlook for monetary policy from Governor Masaaki Shirakawa's post-meeting news conference, with his comments due after 4:15 p.m. (0715 GMT). - Reuters
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