By Mariko Hayashibara TOKYO, June 15 - The yen was on the defensive Friday afternoon as Japanese politicians kept up their calls for further monetary easing after the Bank of Japan's policy board decided unanimously to keep monetary policy unchanged. The yen, which edged up initially to around 121.40 yen to the dollar from the 121.65 level after the BOJ's policy-making board voted to stand pat, later edged back down to about 121.70.
"This seems to be due to a consensus view in the market that the BOJ will have to take some type of measure eventually," said Yoshihiko Kobayashi, director of international markets at HypoVereinsbank AG in Tokyo. Shortly after midday, the BOJ said its policy board had decided unanimously to maintain its target volume for the sum of bank reserves and deposits of non-bank institutions parked at the central bank at five trillion yen.
"There is no big disappointment or surprise in the market regarding the BOJ decision," said Jun Kato, manager of the Treasury Business Division at Shinkin Central Bank. "It would be too much to ask the BOJ for further easing at this point when there are no clear developments on structural reform yet," Kato said.
But speculation over future BOJ action was kept alive by a forceful comment from senior Liberal Democratic Party (LDP) lawmaker Hideyuki Aizawa, who said the BOJ's decision fell short of what is needed to revive the deteriorating economy. "It's insufficient. Further monetary easing is needed," said Aizawa, who also heads the LDP's tax panel, adding that the BOJ should set an inflation target of one to 1.5 percent.
And Economics Minister Heizo Takenaka, who attended the BOJ meeting, said he told the board he hoped the BOJ would do whatever was necessary to help the economy. All of which reinforced the market's suspicious that the BOJ will have to ease further eventually to alleviate the pain of reforms being planned by Prime Minister Junichiro Koizumi. In addition, the yen was hurt after the Japanese government downgraded its economic assessment for the fifth consecutive month on Thursday and broke new ground by saying the world's second-largest economy was "deteriorating". At 0530 GMT, the dollar steadied at 121.47/57 yen, slightly higher from 121.27 yen in late New York on Thursday. The euro was also firmer at 104.77/91 yen from 104.55 yen in late New York on Thursday, but running into selling above 105 yen.
DOLLAR EYES U.S. MANUFACTURERS
Despite all the negatives for the yen, dealers were unsure whether the dollar would muster the energy to rally. Traders said the greenback was losing some of its shine due to signs of weakness in the U.S. job market and tame inflation data that dented hopes for a swift U.S. economic recovery.
Remarks from the head of a leading U.S. manufacturers group calling on the U.S. government to relax its strong dollar policy, also depressed the U.S. unit on Thursday offshore. National Association of Manufacturers (NAM) President Jerry Jasinowski said the dollar was "out of balance" by 25 percent to 30 percent and has hurt U.S. industry by putting it at a competitive disadvantage against foreign producers.
Jasinowski vowed to continue pressing the Bush administration to relax its strong dollar policy, but said it was "premature" to call for coordinated central bank intervention to drive the dollar lower. Last week, NAM spearheaded a campaign by U.S. trade organisations to highlight the damaging impact of the strong dollar with a letter to U.S. Treasury Secretary Paul O'Neill.
The euro moved in tight ranges, but retained much of its recent gains on the dollar. It stood at $0.8624/27, little changed from late New York level of $0.8621.