Tokyo, March 19 (Bloomberg) -- The Bank of Japan will probably cutinterest rates to near zero after today's policy-board meeting, in anattempt to ward off recession and reverse a decline in stocks, analystssaid. Fifteen of the 16 economists, investors and traders surveyed byBloomberg News said the central bank will probably lower the keyovernight loan rate, at which banks lend to each other, to close to zero.The bank cut the rate 10 basis points to 0.15 percent on Feb. 28. The BOJ is trying to ward off a recession and reverse a slide in stocks thatsent the main Nikkei 225 index to a 16-year low last week. It may takemore radical steps, such as a pledge to increase the amount of bonds thebank buys each month, for the bank to revive the economy, some analystssaid. ``Cutting rates close to zero has already been factored in by financialmarkets, and the focus is what else the BOJ can do'' to help the economy,said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan. The board meeting started just after 9 a.m., Japan time. The board'sdecision is announced about 10 minutes after the meeting finishes,usually late in the afternoon. There's ``no merit in delaying a rate cut,'' said Takehiro Sato, aneconomist at Morgan Stanley Dean Witter Japan. ``By waiting, the BOJwould only increase the risks to the economy.''
Fed Rate Cuts
Bank of Japan Governor Masaru Hayami last week hinted the bank maycut rates to close to zero. ``We'll seriously listen to'' calls to help theeconomy, Hayami told a parliamentary committee. Board members ``wantto make an appropriate judgment.'' A return to the zero-rate policy, first introduced in March 1999, wouldcome just seven months after rates were raised for the first time in 10years. The sudden turnaround in policy highlights the fragility of Japan'seconomy when growth in its major trading partners, led by the U.S.,slows. The U.S. Federal Reserve will probably cut its benchmark rate by at leasthalf a percentage point Tuesday. A majority of the 25 investment firms thattrade government securities directly with the Fed expect its policy makersto lower the overnight bank lending rate to 5 percent from 5.50 percent.Ten of the dealers foresee a cut to 4.75 percent.
Stocks, Yen Decline
Japan's industrial production had its biggest decline in more than fiveyears in January, and exports to Japan's three major markets -- Asia, theU.S. and Europe -- fell, handing the country its first trade deficit in fouryears. On top of that, the benchmark Nikkei stock index has dropped 24 percentsince interest rates were raised Aug. 11, taking its loss this fiscal year to41 percent. The index last week sunk to a 16- year low 11,433.88. That's fueled concern some banks will report losses, because from April 1they have to value stocks they hold at market price for the first time. The Nikkei fell 0.5 percent in early trade to 12,174.60. The yen wasrecently at 123.35, its lowest since May 1999, from 123.03 in New Yorklast Friday. When the BOJ raised rates in August, Hayami said the economy wasrecovering and the threat of deflation had disappeared. Those concerns have now resurfaced. The government last week said theeconomy has paused and is suffering deflation. Consumer prices in Tokyofell a record 1.1 percent last month from a year earlier.
Inflation Target
A return to the zero-rate policy may be accompanied by more radicalsteps, such as setting an inflation target to indicate how long rates will bekept at zero, some analysts said. Hayami has hinted he has eased his opposition to adopting an inflationtarget or increasing the amount of government bonds the bank buys eachmonth. Taking such steps ``hinges crucially'' on the economy's health, hesaid in a speech last week. If that doesn't happen today, the BOJ may hint at adopting some kind ofprice target at its next board meeting on April 13, analysts said. The bankis scheduled to release its twice yearly outlook of the economy that day,including forecasts for consumer prices, wholesale prices and economicgrowth. ``Just announcing the revival of zero rates won't make much sense,'' saidHiromichi Shirakawa, chief economist at UBS Warburg LLC. ``Investorsare waiting to see how long the BOJ plans to keep rates near zero thistime, and what kind of targets it will use to signal policy.'' When the BOJ first cut rates to zero, Hayami said the policy would remainuntil the bank could see the threat of deflation had passed. Politicians andeconomists criticized the definition, saying it was too vague.