Tokyo, April 13 (Bloomberg) -- The Bank of Japan kept interest rates unchanged today, afterlowering them almost to zero and injecting more money into the banking system at its previousmeeting. In a two-paragraph statement released at the end of a two-day meeting, the bank said itsdecision to leave policy unchanged was unanimous. All 11 economists, investors and traderssurveyed by Bloomberg News had expected policy to remain unchanged. ``The BOJ took some pretty bold steps in March and now wants to wait and see the effect theyhave,'' said Yukari Sato, a senior economist at Nikko Salomon Smith Barney Ltd. The central bank said it will leave the target for reserves that banks must deposit at the BOJunchanged at 5 trillion yen ($40 billion). It raised the target by 1 trillion yen when it last met onMarch 19. ``Should there be a risk of financial market instability -- that is, a rapid surge in liquidity demand-- the bank will provide ample liquidity irrespective of the guidelines,'' the statement said. The yen was little changed at 124.20 yen per dollar, and the yield on 10-year government bondswas recently 1.425 percent, down from 1.450 percent this morning. The Nikkei 225 stockaverage rose 0.2 percent to 13,378.14.
Structural Reforms
After paring rates to the bone and injecting more money into the banking system to try to halt athree-year decline in lending, the central bank urged lawmakers to push through structuralreform, even if that proved painful. It may be disappointed with the response. The government last week gave the biggest banks twoto three years to write off about 13 trillion yen ($105 billion) of their dud loans. It also said it would set up a fund to buy some of the 43 trillion yen of company shares that banks own. Thatwould prevent banks' capital from being eroded by declines in share prices. ``The amount of bad loans has declined little over the past several years, though banks havedisposed of trillions of yen of bad loans every year,'' central bank Governor Masaru Hayami saidin a speech yesterday. Disposals are needed ``not only to stabilize Japan's financial system butalso to achieve sustainable growth,'' he said. Investors and analysts criticized the plan, saying it lacked detail on when it would be put intoaction and how it would be paid for. They added that it addressed less than one-third of the badloans of the nation's banks.
Unanimous Decision
Today's was the first unanimous board decision since May 1998. Eiko Shinotsuka, who favored atight policy, left the board last month at the end of her three-year term. She was replaced byMiyako Suda, who describes her policy stance as ``neutral.'' After its March 19 meeting, the central bank said it now targets the amount of reserves held forcommercial banks rather than the interbank overnight loan rate. It also said it's ready to buymore government bonds from investors to inject more money into the economy. Since the board last met, economic reports have pointed to more trouble in the world's second-biggest economy. Business confidence fell for the first time in more than two years in March, thecentral bank's quarterly Tankan survey showed.
Gloomy Appraisal
The government today downgraded its appraisal of the economy for the third straight month. Inthe gloomiest assessment in more than five years, the government said the economy isweakening as a decline in exports forces companies to cut production. Deflation is posing more of a threat. Consumer prices in Tokyo, excluding fresh food, have fallenfrom year-earlier levels for 18 months, and wholesale prices have dropped for six months. The central bank will release its monthly economic assessment at 8:50 a.m. Monday. ``The BOJ assessment will be downgraded this month, reflecting the worsening Tankanconfidence,'' said Takehiro Sato, economist at Morgan Stanley Dean Witter Japan Ltd. The BOJ said it would keep rates close to zero until nationwide prices, excluding fresh food, stopfalling from year- earlier levels. That may take two years or more, analysts said, and requirefurther action from the central bank. ``The current 5 trillion yen reserve target is the minimum'' to help the economy, said KojiShimamoto, chief strategist at BNP Paribas Securities Japan Ltd. ``The BOJ is on track to raisethe target down the road, but I don't think it will do so hastily.'' Central bank board member Teizo Taya last week said the bank is ready to raise the target if theeconomy needs more help. Still, he said the BOJ won't raise interest rates if the economy isn'tgrowing 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 ``the condition couldbe met in the near future, because a weakening yen will easily push up prices,'' said Izuru Kato,senior market economist at money market broker Tokyo Tanshi. ``However, if the BOJ alsowatches the growth rate, it will take two or more years.'' The minutes of today's meeting will be published on May 23.