BOJ likely to hold fire but signal further easing
* Decision expected 0330-0500 GMT
* Policy rate likely steady at 0-0.1 pct, no change to asset buying plan
* Board to discuss loan scheme to support quake-hit banks
* Governor Shirakawa to hold news conference after meeting
By Leika Kihara
TOKYO, April 7 (Reuters) - The Bank of Japan is expected to stand pat on monetary policy on Thursday but warn of the severe damage to the economy from last month's devastating earthquake, signalling its readiness to ease policy further even as other central banks ponder raising rates.
After doubling its asset buying scheme just three weeks ago, the BOJ is likely to hold off with more action and instead focus on assisting with the immediate funding needs of Japan's quake-hit northeast.
With rolling power blackouts and supply chain disruptions already hitting output, however, the BOJ will cut its assessment of the economy and emphasise that it is by no means done easing policy to contain the quake's damage to growth.
"The BOJ will scrutinise upcoming economic data and how companies are operating after the quake in deciding on its next step," said Naoki Iizuka, senior economist at Mizuho Securities.
"It will most likely expand its asset buying fund when it issues its semiannual report on April 28, so that it can buy more government bonds from the market under the scheme."
The nine-member board will also discuss how to assist banks in the quake-hit region. One idea is to offer one-year loans at 0.1 percent interest to financial institutions in the northeast, sources familiar with the central bank's thinking said.
That will help banks operating in the area such as Tohoku Bank , Toho Bank , Bank of Iwate , and 77 Bank .
The BOJ is set to keep its benchmark interest rate on hold at a range of zero to 0.1 percent. Expectations that rates will stay ultra-low in Japan even as central banks in Europe and the United States begin to withdraw their stimulus have triggered a downtrend in the yen.
Japan is facing its worst crisis since World War Two after a 9.0 magnitude quake and a towering tsunami battered its northeast coast, rocking the world's third-largest economy.
Days after the quake the BOJ doubled to 10 trillion yen ($118 billion) a programme under which it buys assets ranging from government bonds to private debt, as a pre-emptive step against possible damage to economic activity.
With scant hard data on the disaster's impact, many in the central bank see little point in easing policy again now and prefer to save their limited policy options for when the damage to the economy becomes clearer.
The BOJ is likely to sharply cut its economic forecasts in its semiannual outlook report due on April 28, which can serve as a prompt for additional easing, most likely through a further expansion of the asset buying scheme.
Market players will scrutinise Governor Masaaki Shirakawa's news conference after the policy meeting for clues on how soon the central bank will next ease policy.
Damage from rolling power blackouts will hit output and the economy hardest in the first half of this calendar year with the damage likely to persist at least until year-end, BOJ officials say.
The government expects material damage from the disaster to reach up to $300 billion, but analysts warn the ultimate cost will be far higher. [ID:nL3E7F10XI]
Manufacturing activity posted its steepest monthly decline on record in March, a purchasing managers' survey showed.
Illustrating the plight of automakers, lost car production in Japan in the two weeks after the quake topped one-third of a million vehicles.
With Japan's huge debt pile narrowing the room for fiscal stimulus, pressure for further monetary easing may heighten in coming months as the government prepares extra budgets for disaster relief and reconstruction, analysts say.
Calls from some lawmakers for the government to issue bonds for disaster relief, and for the BOJ to underwrite the issue, were quickly dismissed by finance and economic ministers.
But Economics Minister Kaoru Yosano signalled that the government might ask the BOJ for help in the future when its focus shifts to reconstruction from immediate disaster relief.
"What the BOJ should do is up to the BOJ to decide," Yosano told a news conference on Tuesday.
"When we start to think about reconstruction in more detail, however, the question of what monetary policy ought to be like will be taken up for discussion," he said. ($1 = 84.900 Japanese Yen) (Additional reporting by Rie Ishiguro and Kaori Kaneko; Editing by Edmund Klamann)
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