17 January 2001, 11:10  OUTLOOK: BoJ expected to ignore market calls for policy action this Friday

---- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - The Bank of Japan is expected to maintain its interest rate stance at this Friday's board meeting, ignoring increased calls for a policy response to the sustained slide in local equities, analysts said.
It will be easier for policymakers not to raise the overnight call rate, currently at 0.25 pct, following the rebound in the share market from 27-month lows seen earlier this month, as well as the yen's recent slide, they said.
The Nikkei 225 index has recovered to around the 13,600 point level as of today after hitting a low of 13,123.81 on January 11.
However, pressure will mount as politicians demand the central bank take up its share of the responsibility for reviving the markets after recent Liberal Democratic Party moves to consider stock-boosting measures.
The ruling LDP set up a committee on Monday, chaired by former Financial Reconstruction Committee chairman Hideyuki Aizawa, to examine ways to revitatilize the sagging stockmarket.
Aizawa has said recently he will seriously consider lifting restrictions on companies' purchases of their own shares under the definition of treasury stock.
The Commercial Code allows firms to buy their own shares only to retire them, set up stock-option programs or buy up odd-lot shares. A loosening of these rules, it is hoped, would encourage companies to buy their own shares, helping to mop up supply from recent mass selling by banks of the cross-shareholdings they had held to cement business ties.
The government may also consider using public funds to buy shares coming on to the market but, in either case, it is unclear these measures could be put in place before the fiscal year-end in March, when banks report earnings.
"They have to have the legal infrastructure to do this," HSBC Securities strategist Garry Evans said, adding: "They simply don't have 30 trln yen, which is 6 pct of GDP."
Such bureaucratic hold-ups will put the focus back on the central bank and the debate over whether it should ease monetary policy as a stop-gap measure, analysts said.
Members of the economic and fiscal advisory panel to Prime Minister Yoshiro Mori, including BoJ governor Masaru Hayami, will gather tomorrow to discuss the latest developments in the economy. Merrill Lynch strategist Masuhisa Kobayashi said investors need to "watch how strongly (other members of the panel) urge governor Hayami to ease policy at that meeting."
However, he said the bank is unlikely to change policy on Friday but it may decide on an easing at subsequent meetings on Feb 9 or 28. Even then, "the yen needs to be strengthening by that time" before the central bank makes any likely move, he added.
Nikko Salomon Smith Barney chief strategist Kazuhiko Sano said he now sees a stronger chance of the BoJ cutting the overnight call rate back to zero before the end of March.
However, "the possibility is high that monetary policy will be left unchanged at the Jan 19 meeting," he said. "Pressure on the BoJ is not so strong and there is no evidence" of board discussions of an easing as yet.
Mizuho Securities chief market economist Yasunari Ueno said that even given more serious debate over developments in the share market and economy, the bank will maintain its current position.
"It seems that governor Hayami still adheres to his own belief that promotion of structural reforms is far more important than taking reactive and short-term action," he said.
Barclays Capital chief economist Mamoru Yamazaki said that the board meeting "may study what can be done should the economy begin to worsen beyond its expectations, or recent market developments shake economic activity."
However, "the possibility of any policy change at that meeting is low ... as the BoJ is most unlikely to change its monetary policy just because of worries over share-price declines."
Daiwa Securities SB Capital markets chief market economist Tatsuya Torikoshi said that while "from a strategic viewpoint, if it wants to have any positive impact on sentiment, the bank should move Friday" he expects no change.

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