The Bank of Japan kept its monetary policy unchanged Tuesday, deciding to keep the banking system awash with funds.
The decision reflects the central bank’s view that despite the Cabinet Office’s judgment last week that the economy has hit bottom, any export-assisted recovery will probably be weak.
The central bank will continue pumping money into private-sector banks’ current accounts at the BOJ to keep the balance at around 10 trillion yen to 15 trillion yen, the Policy Board decided by unanimous vote.
In addition, the BOJ repeated its determination to flood the banking system with excess cash in the event that fund demand suddenly rises.
“Should there be a risk of financial market instability, such as a surge in liquidity demand, the bank will provide more liquidity irrespective of the guideline above,” the policy guideline read.
Since March 2001, the BOJ has been force-feeding the banking system with record levels of money in the hope that some of it will find its way to companies and individuals, stimulate demand and halt price falls.
Earlier in the day, economy minister Heizo Takenaka said the current economic situation does not warrant a change in monetary policy, adding that he will keep an eye on the yen’s recent rise.
On the other hand, Finance Minister Masajuro Shiokawa separately said he wants the BOJ to ease monetary policy further.
“Given that the economy is firming up, I want credit eased further,” Shiokawa told a news conference.
The government has made an upward revision to its economic readings for March, raising the key gauge to 61.1 percent from 56.3 percent, the Cabinet Office said Tuesday.
The revised coincident index confirms that the gauge topped the boom-or-bust line of 50 percent in March for the first time since December 2000, the office said in a report released May 9.
A reading below 50 percent is considered a sign of economic contraction. A figure above is considered a sign of expansion.
The government also revised the index of leading indicators, which measures economic growth six to nine months ahead, raising the gauge 1.8 percentage points to 81.8 percent, its third consecutive month above the 50 percent line.
The index of lagging indicators, which gauges recent economic performance, was left unchanged at 40 percent. The lagging index has been below the 50 percent line for eighth straight months.
The diffusion indexes of the coincident, leading and lagging indicators compare the current levels of various economic indicators with their levels three months ago.
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