BOJ may scrap 0.1 pct rate floor,pledge open-ended asset buying -sources

TOKYO Thu Jan 17, 2013 12:25pm EST

TOKYO Jan 18 (Reuters) - The Bank of Japan will next week mull scrapping its 0.1 percent floor on short-term interest rates and pledging to buy assets open-endedly until 2 percent inflation is foreseen, sources familiar with the central bank's thinking said.

Such steps would surprise the markets, which have been expecting the central bank to settle on the more conventional step of topping up its asset-buying and lending programme by another 10 trillion yen ($113 billion).

Under relentless pressure from Prime Minister Shinzo Abe for bolder steps to beat deflation, the central bank is likely to double its inflation target to 2 percent and consider expanding monetary stimulus again at its two-day rate review that ends next Tuesday, sources told Reuters last week.

Instead of topping up the asset-buying and lending programme again, the BOJ may pledge to buy assets open-endedly until 2 percent inflation is in sight, without setting a specific date for completing the purchases, the sources said.

Another idea being floated is for the central bank to pledge that it will keep the balance of its asset-buying and lending programme intact even beyond its end-2013 deadline, they said.

The BOJ will also consider scrapping the 0.1 percent interest it pays on excess reserves that financial institutions park at the central bank, according to the sources, who spoke on condition of anonymity due to the sensitivity of the matter. That rate has effectively served as a floor to money market rates and kept them from falling to zero.