December 5, 2012 / 3:20 AM / 5 years ago

UPDATE 2-BOJ deputy gov signals will debate easing in December

* BOJ will debate if Sept, Oct easing was enough - Nishimura
    * BOJ will take decisive action if risks heighten -
    * Adds BOJ focusing more on downside economic risks
    * To keep asset-buying scheme until 1 pct inflation in sight
    * Remarks heighten chance BOJ will ease again in December

    By Leika Kihara
    NIIGATA, Japan, Dec 5 (Reuters) - The Bank of Japan will
debate whether further monetary stimulus is needed to support an
economy seen as undershooting forecasts, its deputy governor
said, offering the strongest signal to date that it may loosen
policy again this month in the face of growing political
    Deputy Governor Kiyohiko Nishimura also suggested that while
the BOJ's current asset-buying programme remains its key policy
easing tool, the central bank will not rule out new ideas to
beat deflation, which has plagued Japan for more than a decade.
    "The BOJ has been and will always be open to any new
possibilities in terms of monetary policy steps," he told a news
conference in Niigata, northwestern Japan, on Wednesday.
    The remarks by Nishimura, one of the BOJ's two deputy
governors, echo the pessimistic views offered by board member
Sayuri Shirai last week, a sign the central bank is leaning
toward easing again this month despite boosting asset purchases
for two straight months in October.
    "We took action in September and October because what we
thought were risks back in the summer materialised. We must
debate and consider whether that was enough, taking into account
various data which came out since then," he said.
    The BOJ has been under intense political pressure to take
bolder action to beat deflation.
    Shinzo Abe, head of a main opposition party which looks set
to win a Dec. 16 general election, has called for "unlimited"
easing to achieve 2 percent inflation as well as a possible
revision to a law guaranteeing the BOJ's independence.
    Many market players have thus expected the BOJ to ease again
at its next policy meeting on Dec. 19-20, to be held just days
after the election, or in January.
    Nishimura's remarks suggest the BOJ likely will not wait
until January if upcoming data, such as its closely-watched
"tankan" business sentiment survey due on Dec. 14, turn out to
be weak.
    "Hard data for October were tilted less to the downside, but
that does not mean downside risks have disappeared, so there is
a good rationale for the BOJ to ease this month," said Masamichi
Adachi, senior economist at JPMorgan Securities in Tokyo.
    "I don't think the BOJ will take the more radical measures
that some people are arguing for. They're likely to go for a
steady increase in asset purchases, maybe even beyond 2013."
    The 10-year Japanese government bond futures contract hit a
near-decade high on expectations of further BOJ easing. 
    The BOJ set a 1 percent inflation target in February and
eased four times this year in an effort to revive the economy
and show its determination to beat deflation.
    But the economy shrank 0.9 percent in the September quarter
and is expected to contract again this quarter, meeting the
popular definition of a recession, as the country deals with the
global headwinds such as falling exports to China.
    Nishimura, a former economics professor, said that while a
surprise rebound in factory output in October was a positive
sign, the economy may undershoot the central bank's long-term
forecasts made in October as weak global growth may delay a
recovery in exports and hurt domestic demand.
    "The BOJ has been and will always be ready to take
appropriate and decisive action when the economy deviates from
our baseline scenario, or when risks to our scenario
materialise," he said in a meeting with business leaders prior
to the news conference.
    Japanese manufacturing activity contracted in November at
the fastest pace in 19 months, a survey showed last week.
    With interest rates virtually at zero, the central bank put
in place in 2010 an asset-buying and loan programme as its key
monetary easing tool. It has repeatedly topped up the programme,
now pledging to pump 91 trillion yen ($1 trillion) via asset
buying and market operations.
    The BOJ will keep its asset-buying programme in place even
after the end-2013 deadline for purchases if 1 percent inflation
is not foreseen by then, Nishimura said, strenghtening the
bank's commitment to ultra-easy policy.
    He did not specify what new measures could be available
besides those already announced by the BOJ, only saying that the
central bank will always weigh the costs and benefits in
deciding on new policy steps.
    A former academic and among the BOJ's two deputy governors,
Nishimura surprised markets by proposing an expansion in asset
purchases last year. His proposal was not accepted by the board
at that time. He has voted with the majority since then.

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