UPDATE 4-BOJ eases monetary policy, supports FX intervention

Thu Aug 4, 2011 6:12am EDT

 * BOJ tops up asset buying, fixed-rate market operation
 * Decision came after speeded-up rate review
 * Yen rise, global slowdown hurting sentiment - Shirakawa
 * Shirakawa: BOJ, govt communicate closely, share economy
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 (Adds Shirakawa quotes)	
 By Leika Kihara	
 TOKYO, Aug 4 (Reuters) - The Bank of Japan eased monetary
policy by boosting asset purchases on Thursday at a rate review
that was cut short by a day, signalling its determination to
support Tokyo's solo currency intervention to weaken the yen.	
 The decision was widely expected as the central bank had
signalled that any easing of credit would take the form of an
increase in the 10 trillion yen ($130 billion) asset buying
programme. By a unanimous vote, the BOJ added another 5 trillion
yen to the pool of funds established last year.  	
 The government welcomed the move and BOJ Governor Masaaki
Shirakawa said the central bank was in close touch with the
government, suggesting that the two sides will continue to work
together to address the yen's strength.	
 "Japan faces various challenges such as power constraints.
When the yen rises in such circumstances it can hurt business
sentiment and prompt companies to shift production overseas,"
Shirakawa told a news conference.	
 On whether the BOJ was ready to further boost asset
purchases, Shirakawa said: "The economy is a living thing. We
central bankers tend to say, 'Never say never'."	
 	
 Japan intervened in the currency market on Thursday to curb
rises in the yen that officials fear threatened to derail the
export-reliant economy's recovery from a slump triggered by a
devastating earthquake in March.	
 Sources familiar with the central bank's thinking had told
Reuters the BOJ would ease policy if Tokyo stepped into the
market, to maximise the effect of weakening the yen.	
 The decision to buy more assets, including exchange-traded
funds (ETFs) and real-estate investment trusts (REITs), gave a
modest boost to the Nikkei share average . But the effect
on the yen and bond yields was muted, casting doubt on how
effectively it could help to keep the yen in check.	
 "The central bank seems to be working in sync with the MOF,
and that is different from past times when they eased policy.
It's a message that they are willing to act to stop the yen from
appreciating further," said Koichi Ono, a senior strategist at
Daiwa Securities Capital Markets in Tokyo.	
 "It still remains to be seen whether the easing will
actually temper the yen's strength. The market focus has already
shifted to what the BOJ may have to do if yen strength
persists."	
 The BOJ's action follows a surprise interest rate cut by
Switzerland's central bank to ease buying pressure on the Swiss
franc, which like the yen had been attracting funds shifted out
of the dollar on concerns about the health of the U.S. economy.	
	
 RECOVERY THREATENED	
 The BOJ set up the asset programme last year to buy items
ranging from government bonds to corporate debt, and doubled it
just days after the March quake. 	
 On Thursday, it also topped up by programme offering funds
via market operations at 0.1 percent by a similar amount to 35
trillion yen.	
 As a result, the size of its funds for asset buying and
market operations backed by collateral swelled to 50 trillion
yen, which the BOJ hopes to plough into asset purchases by the
end of next year.	
 As widely expected, the BOJ maintained its benchmark policy
rate at a range of zero to 0.1 percent.	
 BOJ officials had become increasingly worried that the yen's
surge of nearly 5 percent against the dollar over the past month
might prevent the economy from exiting recession in autumn, when
it shakes off quake-related supply constraints.	
 Shirakawa said that while the BOJ was sticking to its view
that Japan will resume a moderate recovery later this year,
heightening risks to that scenario warranted easing policy now.	
 The possibility of more monetary stimulus increased after
Prime Minister Naoto Kan made a rare call on Wednesday for the
BOJ to support the economy, and a slump in Tokyo share prices
raised concern that the pain from the yen rise was intensifying.	
 The decision to ease on the same day as intervention, even
if it meant cutting short its two-day rate review, indicated
that the BOJ wanted to avoid a repeat of last summer, when it
was criticised for responding too slowly to a yen spike driven
by expectations of massive U.S. monetary easing.	
 At that time, it eased policy at an emergency meeting last
August only after explicit pressure from the government.	
 "We are always closely communicating with the finance
ministry," Shirakawa said. "As for current economic conditions,
we basically share the same view."	
 ($1 = 76.890 Japanese Yen)	
	
 (Additional reporting by Rie Ishiguro, Kaori Kaneko and Stanley
White; Editing by Yoko Nishikawa)	
 
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