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The Bank of Japan on Wednesday left its monetary policy unchanged, as expected by market participants, due to stability in the financial markets.

The BOJ Policy Board decided unanimously during a one-day meeting to keep its target for the outstanding balance of deposits at current accounts held by private financial institutions at the bank in a range between 27 trillion yen and 30 trillion yen.

But the BOJ said that should there be a risk of financial market instability, including a surge in liquidity demand, it will provide more liquidity regardless of the target.

Financial analysts said the decision was expected because of the recent steadiness in Tokyo stock prices, with the benchmark Nikkei average hovering around 9,000, up from the 8,100 to 8,300 range in late May.

“Share prices were moving firmly, foreign-exchange rates were stable with no sharp fluctuations, and long-term interest rates appear to have stabilized after sharp rises last week,” said Yukari Sato, senior economist at J.P. Morgan Securities Asia Pte. Ltd. “With the financial markets showing stability, the BOJ has no reason to change its monetary policy.”

Sato said the markets will keep a close watch on developments in the bond market in the coming months due to a possible increase in bond issuance in response to calls for a supplementary budget by influential members of the Liberal Democratic Party ahead of the LDP presidential election in September.

BOJ Gov. Toshihiko Fukui’s comments Tuesday about recent falls in Japanese government bond prices also led them to believe he is tolerant about the current levels of JGB prices.

In a speech to the National Association of Shinkin Banks in Tokyo, Fukui said financial markets are now stable, apparently referring to the stock price rallies.

He also said the BOJ’s credit easing in April and May calmed market jitters over liquidity despite the spread of severe acute respiratory syndrome across Asia and the government’s decision to bail out Resona Bank.

Fukui said long-term interest rates remain at a low level despite last week’s selloff of JGBs, a comment taken to suggest the nine-member board will not adopt specific measures to stabilize the JGB market.

“Although there is a sign of slight rises (in long-term interest rates) at this point, they remain at a low level if we see them in a broader perspective,” he said.

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