By Mayumi Otsuma
Tokyo, Feb. 14 (Bloomberg) -- Japan's central bank held interest rates near zero and refrained from increasing the amount of money it pumps into the banking system as it waits for the government to name a new head of the bank.
The Bank of Japan kept monthly purchases of government bonds from commercial banks unchanged at 1.2 trillion yen ($9.9 billion). The decision was unanimous. Increasing bond purchases has been one of the few tools left to the central bank to revive the world's second-largest economy since it cut interest rates almost to zero in March 2001.
The central bank probably won't change its policy until Prime Minister Junichiro Koizumi names a successor to Governor Masaru Hayami, whose five-year term ends on March 19, analysts said. Koizumi has said he will by the end of this month choose a new chief who can ``aggressively'' fight falling prices.
``The central bank probably doesn't want to make any policy changes when its chief is leaving,'' said Yuuki Sakurai, who helps manage 1.7 trillion yen of fixed-income assets at Fukoku Mutual Life Insurance Co. ``You can't ask a new governor to take the responsibility of policy changes if he isn't involved in decisions.''
The bank today also kept the upper limit of reserves it makes available to lenders unchanged at 20 trillion yen. Minutes of the meeting will be published on March 10.
The central bank said in a statement that it is ready to pump more money into the banking system, regardless of its reserve target, if it's necessary to ensure the stability of financial markets before the fiscal year ends March 31.
Government Pressure
Hayami and his eight policy colleagues have often resisted government pressure to inject more money into the banking system, saying funds won't flow to companies and consumers unless the government pushes commercial banks to clean up 52.4 trillion yen in bad loans.
Politicians say the central bank hasn't done enough to fight 4 1/2 years of falling prices, which cut companies' profits, inflate debt payments and sap economic growth.
Japan's economy unexpectedly grew 0.5 percent, seasonally adjusted, in the final three months of 2002 from the previous quarter, boosted by a jump in exports, the government announced today.
That compares with revised growth of 0.7 percent in the third quarter and a median 0.4 percent drop forecast by 41 economists in a Bloomberg News survey.
`Totally Erased'
``Today's GDP data totally erased reasons for the central bank to change policy now,'' said Yasuo Goto, a senior economist at Mitsubishi Research Institute. ``If GDP had been a big minus, the bank could have been under pressure to immediately implement steps to shore up the economy.''
The yield on 10-year Japanese government bonds fell to a record low 0.75 percent on Jan. 30 on expectations economic growth would slow further, price declines would continue to squeeze growth and the bank may increase its bond purchases. The yield on the No. 246 bond, which carries a 0.8 percent coupon and matures in 2012, rose 0.090 basis points to 99.772 at 11:05 a.m Tokyo time. A basis point is 0.01 percentage point.
Bond Purchases
The central bank may increase bond purchases next month if stock prices plunge with the approach of the March 31 fiscal year- end, analysts said. Japanese companies and banks must report losses on their stock holdings at the end of the business year when they close their books.
Japan's seven largest lenders held a combined 5.1 trillion yen in unrealized losses on their stock holdings as of Feb. 7, four times more than they held at the end of the last fiscal year, according to Daiwa Institute of Research.
``There is no doubt stock prices are one index the bank is very closely watching,'' said Mitsubishi's Goto, who's a former central bank official.
The Nikkei 225 Stock Average in 2002 dropped to an 18-year low seven weeks before the fiscal year-end. That prompted the central bank to expand its monthly bond buying by a fifth to 1 trillion yen. The average is little changed this year after dropping 19 percent in 2002.
It was at 8706.59 at 1.58 p.m. in Tokyo, a gain of 1.2 percent. It tumbled to a 20-year low 8327.03 on Jan. 31, after losing about a fifth of its value last year.
Meeting Next Month
``There is still a chance that the bank will implement steps to inject extra cash into the economy by the fiscal-year end,'' said Mamoru Yamazaki, chief economist at Barclays Capital Japan Ltd.
The central bank's policy makers next meet on March 4-5, which will be Hayami's last meeting as governor.
Government officials are putting more pressure on the central bank to inject extra cash into the economy. Finance Minister Masajuro Shiokawa this week said the ministry would keep asking the bank to inject more money into the banking system.
``There is no change in our stance on this matter,'' Shiokawa said.
Takayoshi Taniguchi, a senior vice minister of finance who attended the policy meeting, has urged the bank to increase monthly bond purchases to as much as 2 trillion yen.