Tokyo, Jan. 22 (Bloomberg) -- The Bank of Japan kept interest rates near zero and held off from raising the amount of bonds it buys from lenders, one of the few monetary policy options left for it to stimulate the world's second-largest economy. The central bank instead will watch how stock markets perform in the lead-up to the March 31 fiscal year-end, when banks and companies must book investment losses, before injecting extra cash into the economy, analysts say. Investment losses could push some of them into insolvency. ``It's fully possible that Japanese stocks will start tumbling again by March 31,'' said Akio Yoshino, general manager of investment research at SG Yamaichi Asset Management Co., which manages 1 trillion yen ($8.5 billion). ``If that happens, the central bank will move to inject more cash into the economy.''
Last year, the Nikkei 225 Stock Average dropped to an 18-year low seven weeks before the fiscal year-end. That prompted the bank to expand in late February its monthly bond buying by a fifth to 1 trillion yen. Bank of Japan Governor Masaru Hayami and his eight policy board colleagues today decided to keep the bank's monthly government bond purchases unchanged at 1.2 trillion yen. They also maintained the 20 trillion yen upper limit on reserves made available to lenders.
Slowing Economy
The yield on the No. 245 10-year government bond fell half a basis to 0.815 percent as of 2:24 p.m. in Tokyo, half a basis point away from a four-year low set yesterday as investors bet a more than four-year decline in prices will deepen, boosting the value of debt's fixed payments. A basis point is 0.01 percentage point. Falling prices are squeezing the economy by cutting corporate profits, eroding the value of real estate and creating new bad loans faster than lenders can dispose of old ones. The government will announce Japan's economic growth rate for the October-December period on Feb. 14, the same day the Bank of Japan board ends its next meeting.
Weakening growth would add pressure on the bank to inject more cash into the economy. Growth will probably slow to 0.6 percent in the year starting April 1 from a projected pace of 0.9 percent in the current fiscal year, the government says. The central bank cut interest rates close to zero in March 2001 and has tripled its monthly bond purchases during the past two years to pump more cash into the economy. That has failed to reverse price declines and a six-year contraction in bank lending. Minutes of the meeting that ended today will be published on Feb. 19. Hayami will speak about the policy decision at a monthly press conference at 3 p.m. Friday. //www.quote.bloomberg.com