BOJ stays course at pair’s first Policy Board meeting

No further monetary easing eyed despite high yen, eurozone woes

Bloomberg

The Bank of Japan refrained from loosening monetary policy at the first meeting attended by its two new board members, despite the effect on the economy of the appreciating yen and Europe’s debt woes.

The central bank kept its asset purchase fund at ¥45 trillion and its lending facility at ¥25 trillion, according to a statement released Thursday. All 22 analysts surveyed by Bloomberg News had predicted no change.

The BOJ kept its benchmark interest rate between zero and 0.1 percent and monthly bond purchases at 1.¥8 trillion. The bank’s main policy tool has been purchasing financial securities ranging from government debt to exchange-traded funds to up growth.

BOJ Gov. Masaaki Shirakawa and his Policy Board won’t be compelled to increase stimulus unless the yen’s uptrend intensifies or politicians step up calls for monetary easing, according to Kiichi Murashima, chief economist at Citigroup in Tokyo. “The chances will rise if market pressure strengthens and the yen then reignites in September in reaction to the Federal Reserve’s possible additional easing,” Murashima said.

Former economists Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co. were participating in their first Policy Board meeting. Both indicated last month that the BOJ should weigh pursuing more stimulus or alternative monetary policy tools to help overcome more than a decade of deflation.

The economic recovery from the Great East Japan Earthquake is showing signs of weakening as the eurozone’s sovereign debt crisis and slowdowns in China and the U.S. take their toll on the global economy.

Gross domestic product slowed to an annual 2.3 percent in the three months that ended June 30, down from 4.7 percent in the previous quarter, according to the median estimate of 24 economists surveyed by Bloomberg News. Machinery orders, an indicator of future capital spending, rose 5.6 percent in June, a government report showed Thursday, missing economists’ projections of a 12 percent increase.

The yen has strengthened more than 1 percent in the past month against the dollar, while the Topix, Japan’s broadest measure of stocks, had shed 2.4 percent as of Wednesday. Yields for benchmark 10-year bonds dropped to 0.72 percent July 23, the lowest since June 2003, highlighting demand for safe assets as Europe’s fiscal crisis deepens.

“The strong yen is key in determining the outlook for monetary policy,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute and a former BOJ official. “Political pressure will intensify once the yen appreciates further and the BOJ will be coerced into expanding stimulus.”

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