October 28, 2010 / 7:24 AM / 9 years ago

WRAPUP 1-BOJ holds fire, signals readiness to act after Fed

* BOJ moves next review to just after Fed meeting

* Analysts see move as sign BOJ ready to act if yen spikes

* Rates on hold, no new policy initiatives

* BOJ says to buy 3.5 trln yen in government debt

* BOJ slightly trims growth forecast, sees slow price growth

By Leika Kihara

TOKYO, Oct 28 (Reuters) - The Bank of Japan held fire on policy on Thursday, but brought forward its next review to right after the Fed meets, sending a signal to markets it was ready to ease policy further if more yen strength threatened the economy.

The central bank said it moved its meeting to Nov. 4-5 from mid-November date to speed up the roll-out of a 5-trillion-yen ($61 billion) asset buying plan, which the BOJ unveiled early this month and detailed at this week’s meeting.[ID:nTOE69Q0B3]

The BOJ also vowed at the Oct. 5 meeting to keep interest rates near zero until the end of deflation was in sight.

Its downward revisions to economic forecasts also published on Thursday were slightly smaller than markets had expected, but showed it would take years before prices start rising at a 1 percent clip the BOJ wants to see before lifting rates.

The central bank made no mention of the U.S. Federal Reserve Nov. 2-3 rate review and said the move would speed up purchases of less conventional assets such as exchange traded funds.

But analysts said the change in the timing showed the Bank of Japan wanted to be able to act quickly if the Fed’s actions next week led to another bout of dollar selling.

“I think the BOJ will try to do something to reduce the negative impact from additional money-easing by the U.S.,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“I assume the BOJ will expand the amount of asset purchases after the FOMC.”

Sources familiar with the BOJ’s thinking have said that by fleshing out the plan the central bank made it easier to justify boosting the scheme as early as next month if the yen shoots up towards record highs.

MORE DOLLARS

The Fed is expected to sign off next week on an extension of its government bond buying scheme to prop up the sputtering U.S. economy.

The prospect of more dollars flowing into markets has driven the U.S. currency to near record lows against the yen, prompting Japanese exporters such as Toyota (7203.T) and Nissan (7201.T) to talk of a looming crisis.

Expectations that the Federal Open Market Committee will opt for piecemeal fund injections rather than a big-bang operation has given the dollar some respite, but a more aggressive action could knock it down again and force the BOJ’s hand.

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Graphic on Fed, BOJ balance sheets:

link.reuters.com/ved62q

Text of BOJ statement on monetary policy:

here

More stories on the Japanese economy [ID:nECONJP]

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BOJ TIMING

The yen took the BOJ's decision in stride, trading little changed around 81.60 to the dollar after the announcement JPY=. The Nikkei average .N225 briefly turned positive before retreating to end slightly lower, while government bond futures 2JGBv1 rose 0.27 point on the day.

While new economic powers such as China, India and Brazil have swiftly recovered from the global financial crisis and the economic slump that followed, Japan, the United States and other rich nations have struggled to sustain economic growth.

Furthermore, the side effects of the trillions of dollars they spent on economic stimulus and record low lending rates have aggravated strains in currency markets, fuelling fears of currency and trade wars.

In its twice-yearly economic report, the BOJ cut its growth forecast for the fiscal year to March 2012 to 1.8 percent from the 1.9 percent predicted three months ago, less than markets had expected.

It also gave its first forecasts for the following year, projecting a pick-up in growth to 2.1 percent and predicting consumer prices would rise 0.6 percent after creeping up by 0.1 percent in 2011/2012.

Detailing its asset buying plan, the central bank said it would buy 1.5 trillion yen in long-term government bonds and 2 trillion yen in short-term government securities. [ID:nTKZ006609]

It also plans to spend 1 trillion yen on commercial paper and corporate debt and up to 450 billion yen on ETFs and 50 billion on J-REITs. ($1=81.69 Yen) (Additional reporting by Kaori Kaneko, Rie Ishiguro, Tetsushi Kajimoto and Stanley White; Writing by Tomasz Janowski; Editing by Kazunori Takada)

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