Instant View: BOJ's Shirakawa: won't rule out any policy option

TOKYO (Reuters) - Bank of Japan Governor Masaaki Shirakawa said after an emergency policy board meeting that the central bank needs to carefully examine the drawbacks when considering cutting already low interest rates.

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KEY POINTS:

-- Shirakawa told a news conference he saw the BOJ's current amount of buying of JGBs as appropriate.

-- But he also said: "We will not rule out any specific policy option."

-- As widely expected, the BOJ decided at an emergency meeting earlier on Monday to expand its fund supply tool, saving more aggressive steps for when there is clearer evidence of a slowdown in a fragile economy hit by a strong yen.

-- The BOJ said after the emergency meeting it will expand its fund supply tool, increasing the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion yen ($351.4 billion) from 20 trillion yen.

-- It also put in place a six-month fund operation in addition to an existing three-month loan programme. Of the 30 trillion yen, 10 trillion yen will be the six-month fund operation.

-- As widely expected, the BOJ maintained its policy rate at 0.1 percent.

COMMENTARY:

YOSHIKIYO SHIMAMINE, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH

INSTITUTE

"The BOJ took the action a bit too late, and the delay had raised market expectations, making market players think the new measures would be something substantial because it took them such a long time.

"The new steps were within the realm of those raised expectations. As a result, share prices pared their earlier gains, and the dollar dipped below 85 yen again."

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YUJI KAMEOKA, SENIOR ECONOMIST, DAIWA INSTITUTE OF RESEARCH

"(Shirakawa's comments) gave an impression the BOJ is careful about boosting its JGB buying or further cutting interest rates.

"The BOJ has become more cautious in its views on the Japanese economy and the global economy.

"There is the possibility that the BOJ could further ease its monetary policy. The central bank has not completely run out of its monetary steps."

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SUSUMU KATO, CHIEF ECONOMIST, CREDIT AGRICOLE, TOKYO

"I was looking to the BOJ to increase its amount of bond purchasing as the next possible step. But the BOJ governor says the current amount of JGB buying is appropriate. It's unclear from what standpoint he is saying so.

"Although he mentions downside risks for Japan's economy, the BOJ does not seem to have a sense of crisis that a strong yen and weak stocks may deepen Japan's deflation.

"In a situation like the present, where more steps are needed, the BOJ is implementing measures only bit by bit, which is disappointing markets."

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TAKAO HATTORI, SENIOR INVESTMENT STRATEGIST, MITSUBISHI UFJ

MORGAN STANLEY SECURITIES, TOKYO

"It seems that he thinks there is little room for action on the monetary policy front.

"Market players think the impact from liquidity provision measures alone will be limited. If the BOJ takes steps that help create upward pressure in risk-taking markets such as equities ... that would leave a slightly different impression, but there seems to quite a long way to go before such measures."

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JUNKO NISHIOKA, CHIEF ECONOMIST, JAPAN, RBS SECURITIES, TOKYO

"The BOJ took action today before the government was to reveal economic measures, so that the central bank could avoid being seen as lagging in its policy responses.

"The market impact from the BOJ's action was limited because the measures were largely within expectations, but perhaps that is because the central bank wanted to leave whatever limited options are available for the future."

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TOSHIYUKI KANAYAMA, MARKET ANALYST, MONEX INC, TOKYO

"There weren't all that many expectations for what he'd say and he didn't vary much from what he usually says. Compared to what Bernanke said last week we now seem to get a clearer sense of the difference in direction between the BOJ and the Fed.

"It'd be nice if some of Shirakawa's comments were a bit more clear.

"The Nikkei rose a lot today but it's still basically searching for direction. There's a sense of disappointment, but at the same time I'm not sure how much people were really expecting."

MARKET REACTION:

-- For yen updates click; for prices click

-- For JGB updates, click, for prices click

-- For stocks click, for the Nikkei share average click

LINK

For text of the BOJ's announcement go to:

www.boj.or.jp/en/index.htm

For graphics showing why yen could remain strong click:

r.reuters.com/puw56n

BACKGROUND

-- It was the first emergency meeting by the BOJ since May, when the central bank decided to resume a dollar fund supply operation in the wake of the Greek debt crisis.

-- The BOJ had last eased monetary policy in March, when it doubled the size of its fixed-rate fund supply tool to 20 trillion yen.

-- Japanese policymakers have tried to talk down the yen and signaled the possibility of intervening in the market after the Japanese currency hit a 15-year high against the dollar last week.

-- The government has also heightened pressure on the BOJ to do its part to support economic growth and help curb rises in the yen, which hurt exports and could delay Japan's exit from deflation.

(Reporting by Leika Kihara; Editing by Michael Watson)