Tokyo, April 12 (Bloomberg) -- The Bank of Japan will probably keep interest ratesunchanged at a two-day meeting starting today, after lowering rates to close to zeroand increasing the amount of money in the banking system when it last met,analysts said. When policymakers last met March 19, they decided to raise the target for reservesthat banks must deposit at the BOJ by 1 trillion yen ($80 billion) to 5 trillion yen, andguide the key lending rate to close to zero. All 11 economists, investors and currency traders surveyed by Bloomberg Newsexpect the central bank to keep policy unchanged at the meeting, which concludestomorrow. ``When the BOJ announced its decision in March, it definitely had taken intoconsideration the deterioration in the economy,'' said Takehiro Sato, economist atMorgan Stanley Dean Witter Japan Ltd. ``So far, things have been developing in linewith the BOJ's scenario, and the bank probably hasn't seen any unexpected risks.'' The central bank is now targeting the amount of reserves held for commercial banks,rather than the overnight loan rate. It also said it's ready to buy more governmentbonds from investors to put more money in the banking system. ``This is a huge change of policy. We've never seen anything approaching it in anindustrial economy,'' said Marc Hendriks, the chief economist at SG Securities(London) Ltd. ``This is the first step on the road to monetization, but the BOJ hasn'tmade a very big song and dance about it.'' The board meeting starts this afternoon. From now, the BOJ's first meeting of themonth will span two days and any policy decision will be announced at the end of themeeting. The board wants more time to discuss its monthly economic report and stillbe able to announce its decision while Tokyo markets are open. Minutes of the meeting will be released on May 23.
New Board Member
That's not the only change. This will be the first meeting for Miyako Suda, whoreplaced Eiko Shinotsuka after her three-year term ended last month. Shinotsuka had voted in favor of raising interest rates even before the BOJ dumped itszero-rate policy in August, and economists and investors are ``watching to see ifShinotsuka's departure will make the board more inclined to support additional stepsto help the economy,'' said Taisuke Tanaka, a strategist at Credit Suisse FirstBoston. Since the board last met, several economic reports have pointed to more trouble inthe world's No. 2 economy. Business confidence fell for the first time in more thantwo years in March, the central bank's quarterly Tankan survey showed. The threat of deflation is getting worse. Consumer prices in Tokyo, excluding freshfood, have fallen from year-earlier levels for 18 months, and wholesale prices havedropped for six months.
Price Declines
The central bank said it would keep rates close to zero until nationwide prices,excluding fresh food, had stopped falling from year-ago levels. That may take twoyears or more, analysts say, and require further action from the central bank. ``The 5 trillion yen reserve target is far from sufficient to boost the economy,'' saidYukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd. ``In severalmonths, the BOJ will probably be forced to raise the target.'' BOJ board member Teizo Taya last week said the bank is ready to raise the target ifthe economy needs more help. He also said the BOJ won't raise interest rates if theeconomy isn't growing as fast as it potentially can, even if prices stop falling. If the BOJ is just waiting for consumer prices to rise before changing policy ``thecondition could be met in the near future, because a weakening yen will easily pushup prices,'' said Izuru Kato, senior market economist at money market broker TokyoTanshi. ``However, if the BOJ also watches the growth rate, it will take two or moreyears.''