Tokyo, March 3 (Bloomberg) -- Japan's central bank will probably refrain from increasing the amount of cash it pumps into the economy at the last policy meeting helmed by Governor Masaru Hayami, analysts said. The bank will probably keep monthly government bond purchases from lenders -- its chief monetary policy tool over the past two years after overnight lending rates were cut to almost zero -- at 1.2 trillion yen ($10.3 billion), according to all 14 economists, fund managers and currency traders surveyed by Bloomberg News. Toshihiko Fukui, a former Bank of Japan deputy governor who was named last week as Hayami's successor, needs to avert a fourth recession in a decade in an economy that grew 0.3 percent last year. He said in December that he may not increase bond purchases much and probably won't set targets to end a four-and-a-half year slide in prices. ``Fukui seems a bit more flexible than Hayami, but there will be no change in the basic mold that the bank will stand pat unless something really urgent happens in financial markets and the economy,'' said Tomoko Fujii, a senior economist at Nikko Salomon Smith Barney Ltd.
The Nikkei 225 stock average has lost a quarter of its value since the current business year started April 1, fueling concerns that investment losses may drive some lenders into insolvency and under government seizure. The index has dropped about 4.4 percent the past two weeks amid worries about economic slowdown. The board meeting will be the last before most Japanese companies and lenders close their books on March 31. The central bank's policy board ends its regular two-day meeting Wednesday and will probably announce its decision after noon. Minutes of the meeting will be published on April 11.
Inaction
Hayami and his eight policy board colleagues last month resisted calls by Ministry of Finance officials to pump more cash into the economy, saying the funds wouldn't flow to companies and consumers because banks can't lend as long as they are burdened with a 52.4 trillion yen in bad loans, according to government estimates as of March 31, 2002. Japanese bonds have rallied since Fukui was nominated, pushing down the yield of the benchmark No. 246 10-year government bond to as low as 0.775 percent on Feb. 25, just 2.5 basis points above a record. A basis point is 0.01 percentage point. Fukui has dimmed expectations the bank will use an inflation target, which aims at causing inflation and would hurt the value of fixed-income assets, investors said. Toshiro Muto, who was a vice finance minister until December, and Kazumasa Iwata, a former economic professor and currently a senior Cabinet official, were named as deputy governors. The nominations of Fukui, Muto and Iwata require parliamentary approval.
``We have to remember two-thirds of the board will remain unchanged,'' said Akio Yoshino, general manager of investment research at SG Yamaichi Asset Management Co., which manages 1 trillion yen. ``These members will maintain their policy continuity, at least for a while.'' The central bank may raise the upper limit of reserves it makes available to lenders in part because of the creation of a new postal agency, which manages the state-run postal savings and other postal businesses, on April 1. The agency, which has 230 trillion yen in deposits, may be regarded as an independent lender and will be required to pool some reserves at the central bank, matching conditions set for other financial institutions. If so, that inclusion would expand the amount of reserves the central bank counts as available to other lenders.
The total reserves held at the central bank have fluctuated between 15 trillion yen and 20 trillion yen since November. Stock Slump
The bank last month changed the wording of its policy directive, saying it's ready to provide as much money as needed to ensure the stability of financial markets in the lead-up to March 31. The Ministry of Finance has asked the central bank to increase bond purchases by two-thirds to 2 trillion yen a month, an amount that would require the bank to scrap a self-imposed limit. Currently, the bank restricts the amount of government bonds it owns to the amount of currency in circulation. The bank may eventually bow to calls that it buy more bonds to hold government borrowing costs down as its debt sales increase, investors said. The government will probably have to keep selling more than 100 trillion yen in bonds a year to pay for refinancing debt already sold. It plans to sell a combined 111 trillion yen in new and refinancing bonds in the fiscal year started April 1. Debt that must be refinanced will rise to 135 trillion yen in five years, the ministry projects.
Bond Sales
``Whether Fukui likes it or not, the issue of how to sell a massive amount of bonds smoothly is crucial,'' said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC Co. ``The central bank can't avoid being involved in helping the management of the country's debt sales.'' Iwata has indicated he supports calls for an inflation target to end a five-year bout of deflation, an analyst said. His membership on the policy board may prompt more diverse discussion of monetary policy, a strategist said. ``Up to now, the government and the central bank have blamed each other, and that has created an impasse of Japan's economic policies for a long time,'' said Takuji Aida, a fixed-income strategist at Merrill Lynch Japan Securities Co. ``The personnel reshuffle will at least enable the board to debate in a more realistic manner about what should be done.'' The following table gives forecasts for the central bank's board meeting on March 3-4. //www.quote.bloomberg.com/