--- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - The Bank of Japan is expected to vote unanimously to maintain its current policy directive at its two-day board meeting beginning Thursday, analysts said.
At its meeting in late June, the BoJ's nine policy-board members voted unanimously to leave the key directive, which calls for keeping the outstanding balance of banks' current accounts at around 5.0 trln yen, unchanged.
The BoJ's quarterly Tankan survey and remarks by BoJ deputy governor Yutaka Yamaguchi last week suggest the central bank will maintain a wait-and-see stance pending developments in the government's structural reform program.
According to the June Tankan report, the diffusion index of business sentiment at large manufacturers fell to minus 16 from minus 5 in the March report but the index is expected to improve to minus 14 in the next survey.
Significantly, the June report found that the DI for large non-manufacturers stood at minus 13, unchanged from the March survey, and is forecast to improve to minus 11 in the September.
Itochu Corp chief economist Seiya Nakajima said the BoJ is likely to wait before taking any action to see if extra downward pressure on the economy emerges in line with the implementation of structural reforms.
"Unless deflation goes to a different level as a result of the implementation of structural reforms, the BoJ is not likely to take any action under the present policy framework," Nakajima said. "If there is any new action, it should be done under a totally new framework," he added.
BoJ deputy governor Yamaguchi said last week that he sees no need to take any fresh action now as the ongoing economic deterioration is not developing beyond the bank's scenario.
The deputy governor said that with the policy directive adopted on March 19, the central bank is fully prepared to deal with any downturn in economic activity.
Yamaguchi, while conceding that the central bank has "effectively exhausted all monetary policy tools," also dimissed growing calls from politicians to implement genuine inflation targeting.
Mizuho Securities Co Ltd chief market economist Yasunari Ueno said that there is still some way to go before the central bank will take any fresh action.
Unless there was to be a major corporate failure posing a systemic risk, or a collapse of the stockmarket, the central bank will most likely keep policy unchanged at the upcoming meeting, Ueno said.
"Even (new BoJ policy board member) Nobuyuki Nakahara, who previously advocated the implementation of strong quantitative monetary easing, has been supporting the maintenance of the present directive, bearing in mind more positive recent economic data," he said. According to data release by the Cabinet Office, the leading index rose to 71.4 points in May from 33.3 in April and while this may be revised down, it should still remain above the boom-bust line of 50 points.
Some economists also noted the forthcoming Upper House elections on July 29 are a key factor blocking the central bank from taking any fresh action at this stage, with the board meeting coinciding with the start of campaigning.
Barclays Capital chief economist Mamoru Yamazaki said the central bank is likely to discuss when it will implement a new policy at the upcoming meeting but given the political schedule is unlikely to announce any changes for the time being.
For his part, UBS Warburg chief economist Hiromichi Shirakawa said his house expects the central bank will decide to increase the banks' current account balances by 1.0 trln yen and to buy more government bonds in the August/September period.
There will be more to come but further measures will depend on developments in the financial system and structural reforms, Shirakawa said.