* Most likely option is to boost asset purchases
* BOJ may pledge keeping asset holdings beyond end-2013
* Some prefer expanding loan programme for growth sector
By Leika Kihara
TOKYO, Oct 23 The Bank of Japan is leaning
toward easing monetary policy again next week, according to
sources familiar with its thinking, with policymakers discussing
additional steps that could come together with a further
increase in its asset buying scheme.
The central bank has been under renewed pressure to expand
monetary stimulus at its Oct. 30 rate review when it is expected
to cut its growth forecasts and push back the timing of hitting
its 1 percent inflation target.
On Monday, a slew of economic reports offered the latest
evidence that the world's third-biggest economy was struggling
to sustain its momentum in the face of global headwinds and
cooling demand and investment at home.
Exports suffered their sharpest decline since the aftermath
of the March 2011 earthquake and business sentiment hurt by the
territorial stand-off with China, Japan's top export market, hit
its lowest since 2010.
Many central bankers are thus leaning toward action, the
sources interviewed in the past several days said.
The most likely option is a further 10 trillion yen ($126
billion) increase to the BOJ's asset buying and lending
programme that now aims to pump 80 trillion yen in financial
asset purchases and market operations by the end of next year.
The increase would mostly come in the form of government
bond buying but may include a small increase in purchases of
exchange-traded funds (ETF) and real estate investment trusts
(REIT), they said.
"The BOJ shouldn't hesitate if there are risks that Japan's
recovery may be further delayed," said one source on condition
of anonymity due to the sensitivity of the matter.
But there is no consensus yet within the central bank on
what the best step would be with some suggesting combining asset
purchases with other steps.
One idea, suggested by some government officials, is to
pledge to maintain the balance of the BOJ's asset holdings under
the programme beyond the end-2013 deadline for purchases, until
1 percent inflation is in sight.
Such commitment in addition to the programme's increase
would go beyond what markets may have expected and assure them
of the BOJ's determination to beat deflation, advocates of the
It could also effectively be seen as an open-ended pledge to
keep buying financial assets in the Federal Reserve's fashion
and would be a fitting response to lawmakers' criticism that the
BOJ was not as decisive in its actions as its U.S. and European
The BOJ has pledged to keep interest rates virtually at zero
until 1 percent inflation is in sight, but has not made clear
what it will do with the asset-buying and loan programme after
the end-2013 deadline for purchases.
Another idea preferred by some within the BOJ is to expand a
loan programme targeting sectors with growth potential, which
was created in 2010 and last expanded to 5.5 trillion yen.
Under the programme, which is the BOJ's long-term effort to
boost the economy's growth potential, the central bank offers
cheap loans to commercial banks that lend to growth industries
such as clean energy and nursing care.
Boosting the size of this programme will send a message to
the government that long-term efforts to nurture new industries,
such as structural reforms, are equally important as easing
monetary policy, advocates of this move say.
Aside from debating monetary policy, the BOJ is also set to
cut its long-term economic and price forecasts at the Oct. 30
rate review and admit that it will take several more years for
Japan to achieve the bank's 1 percent inflation target, sources
have told Reuters.