BOJ likely to ease, may buy longer-dated JGBs
* Decision expected around 0330-0530 GMT * Policy rate see unchanged at 0-0.1 pct * BOJ seen boosting asset buying by up to 10 trln yen * BOJ expected to issue semi-annual report 0600 GMT * Comments from governor's briefing seen after 0715 GMT By Leika Kihara TOKYO, April 27 (Reuters) - The Bank of Japan is likely to ease monetary policy on Friday by boosting asset purchases and may also extend the duration of government bonds it buys to about three years, to show its resolve to achieve the 1 percent inflation target, sources say. The second easing in just over two months would come despite growing signs of an economic recovery, suggesting it would be largely in response to pressure from politicians for bolder action to beat deflation plaguing Japan for more than a decade. Borrowing costs are already low, with two-year bond yields trading at BOJ's overnight rate target ceiling at 0.1 percent, and pumping more money will do little to spur the economy. Any easing will therefore be a symbolic move to show the BOJ's focus on beating deflation and easing political pressure for more aggressive action. Financial markets have already priced in at least a 5 trillion yen ($61 billion) increase in the 30-trillion-yen asset buying scheme. It would take an increase of at least double that amount, coupled with an extension of the duration of government bonds it targets to five years, to surprise markets enough to nudge down the yen and bond yields, analysts say. "An increase of just 5 trillion yen would be interpreted as a sign the BOJ is not aggressive about easing, and therefore may trigger a brief rise in the yen and fall in share prices," said Junko Nishioka, chief economist at RBS Securities Japan. Whether the BOJ will go that far will be a close call. The conservative governor Masaaki Shirakawa will likely prefer just a 5 trillion yen increase, if at all. But there is still a chance the BOJ will double the amount if pessimists at the bank, who do not want to disappoint markets and trigger another unwelcome yen spike, prevail. 1 PCT INFLATION DISTANT With interest rates virtually at zero, the BOJ has created as its main policy tool a pool of funds to buy government bonds with up to two years until maturity, as well as corporate debt and trust funds investing in property and shares. In increasing the fund, the BOJ may extend the duration of government bonds it buys to around three years and the year-end deadline for achieving the target by six months, sources familiar with its thinking have told Reuters. Any expansion in the programme would come mainly in the form of government bonds, although there is a slim chance the BOJ may also pledge to buy more exchange-traded funds (ETFs) depending on the size of increase, they said on condition of anonymity. The BOJ helped weaken the yen and lift stocks in February by boosting asset purchases by 10 trillion yen and setting the 1 percent inflation target. But lawmakers have continued to pile pressure on the BOJ with prices barely rising. On Friday, the BOJ will also release a twice-yearly outlook report with revised long-term forecasts that will show Japan will not see 1 percent inflation for another two years. That will give the BOJ justification to ease policy now despite growing recent signs that Japan's economy is headed for a moderate recovery as projected by the central bank.
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