BOJ to reassure exit from stimulus program distant, keep policy steady

TOKYO (Reuters) - Japan is set to keep monetary policy steady and reassure investors it’s in no rush to dial back its massive stimulus, as it seeks to carefully manage market expectations about the timing of an eventual exit from crisis-era policy.

While the Bank of Japan is seen clinging to its rosy view on the economy, fears of a global trade war, recent market volatility and a strong yen give it plenty of reasons to go slow in the exit process, analysts say.

BOJ Governor Haruhiko Kuroda, who is set to serve another term, rattled markets last Friday by flagging for the first time the prospect of a stimulus exit if 2 percent inflation were met in fiscal 2019 - a remark he later tempered.

Wary of causing another market stir, Kuroda will use his post-meeting briefing to dispel speculation the BOJ will exit easy policy earlier than expected, analysts say.

“The BOJ will be well behind in normalizing policy even though Japan’s economy is doing fine,” said Mari Iwashita, chief market economist at Daiwa Securities.

“This means the BOJ won’t have tools to help the economy when global growth runs out of steam,” she said.

At the two-day rate review that ends on Friday, the BOJ is widely expected to stick to its pledge of guiding short-term interest rates at minus 0.1 percent and the 10-year government bond yields around zero percent.

It will also maintain its assessment that robust capital expenditure and exports will keep Japan’s economy on course for a moderate expansion, and help push up wages and inflation.

Kuroda may warn of potential risks to the outlook such as U.S.-led protectionist fears, and volatile markets that could hurt profits and discourage firms from raising salaries.

The BOJ is caught in a bind. Inflation remains well below its 2 percent target even as the economy enjoys its longest growth run in 28 years, keeping it from dialing back stimulus despite the rising costs of prolonged easing.

That leaves Kuroda with a tough task in his second term beginning in April, which is to navigate the long road toward a stimulus exit with subtle hints without stoking market fears of an imminent policy shift.

A majority of economists polled by Reuters expect the BOJ to keep its long-term rate target unchanged this year, though 40 percent expect a hike.

The March rate review will be the final one before a BOJ leadership change, in which two new deputy governors will replace the departing officeholders on March 20.

Editing by Sam Holmes