UPDATE 3-BOJ stands pat but seen keeping finger on trigger

Tue Apr 10, 2012 4:55am EDT

Related Topics

* Policy rate unchanged at 0-0.1 pct
    * Yen up, stocks down after BOJ holds off on easing
    * Markets factoring in monetary easing on April 27
    * Shirakawa says more convinced of Japan recovery
    * Adds hard to set timetable on achieving price goal


    By Leika Kihara and Rie Ishiguro	
    TOKYO, April 10 (Reuters) - The Bank of Japan kept monetary
policy steady as expected on Tuesday, holding off on any further
steps to help meet its new inflation target and boost activity
ahead of a more thorough assessment of the economy later this
month.	
    The yen edged higher and Tokyo stock prices slid after the
board's unanimous decision to stand pat, although many market
players had expected the bank to wait in easing until the next
rate review on April 27, when revised long-term forecasts should
show that a sustained end to deflation is a long way off.	
    BOJ Governor Masaaki Shirakawa tried to diffuse market hopes
of more stimulus for the fragile economy, saying it was hard to
set a clear-cut timetable for when Japan can achieve the bank's
1 percent inflation target.	
    But markets are already factoring in monetary easing at the
BOJ's next meeting after the finance minister piled fresh
pressure on the central bank, saying he expects it to take
appropriate steps to support the economy this month.	
    "The question now is not whether the BOJ could ease on April
27, but what the bank would do in taking further easing steps,"
said Takeshi Minami, chief economist at Norinchukin Research
Institute in Tokyo.	
    "Inaction would upset politicians and disappoint markets,
possibly sending the dollar below 80 yen."	
    The BOJ maintained its assessment that the economy is
showing some signs of picking up and Shirakawa offered an upbeat
view on the outlook, saying that he saw a greater chance of
Japan achieving a moderate recovery soon.	
    He offered few clues on when the BOJ will next ease, but
signalled that the timing would not be determined solely by yen
or stock moves, warning markets against expecting imminent
action too much.	
    "It's inappropriate to directly link monetary policy with
market moves. The key must always be on economic and price
moves."	
    The BOJ, as widely expected, kept its policy rate at a range
of zero to 0.1 percent, and board member Ryuzo Miyao did not
repeat his solo proposal last month to boost asset purchases.	
    	
    	
    PRESSURE REMAINS	
    The BOJ surprised markets in February by increasing its
asset buying and loan scheme by 10 trillion yen ($121 billion)
and setting a 1 percent inflation target.	
    It held fire last month, as the yen's retreat from record
highs and growing signs Japan is headed for a recovery give it
some breathing space.	
    But renewed expectations of further stimulus by the Federal
Reserve, driven by Friday's disappointing U.S. jobs data, have
nudged the yen to a one-month high against the dollar,
keeping pressure on the BOJ to act again soon.	
    Many on the BOJ board are ready to pull the trigger on any
signs that the recovery is under threat. While they stick to the
view the economy is picking up, they remain worried about risks
such as slowing Chinese growth and high oil prices.	
    Political pressure has not subsided despite February's
action.	
    Finance Minister Jun Azumi voiced hope for an easing this
month, saying that April was key in gauging the outlook for
Japan's economy because money set aside under the state budget
for reconstruction from last year's earthquake will begin to
flow through the economy.	
    "In April we have to build a solid base from which the
economy can expand this year. We also have G20 meetings, and I
think the BOJ will look at this closely and respond
appropriately as needed," he told a news conference on Tuesday.	
    Shirakawa may face demands for more action when he attends,
as an observer, a new government panel to discuss measures to
overcome deflation, which will hold its first meeting by the end
of this month. 	
    The BOJ, knowing political pressure will persist, wants to
time its action wisely. It now expects core consumer inflation
of 0.1 percent for the fiscal year that began in April and 0.5
percent for the following year, well below the 1 percent target.	
    With few signs of domestic price pressures, the BOJ may find
it hard to justify raising its inflation forecast on April 27
unless it is accompanied by another round of stimulus.	
    Shirakawa said he had no preset idea on whether the BOJ
would ease at its next meeting, but added that the bank would
examine economic and prices "particularly closely" at the
meeting and take appropriate steps as needed.	
    When the BOJ next acts, it will probably again expand its 65
trillion yen asset buying and loan programme, mostly by
committing to purchase more government bonds. In doing so, it
may need to extend the maturity of bonds it buys under the
programme to five years from the current two-year timeframe as
two-year yields are already stuck at 0.1 percent.	
    Azumi and Shirakawa are scheduled to attend the G20 finance
leaders' meeting to be held in Washington next week.
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