Tokyo, March 5 (Bloomberg) -- Japan's central bank refrained from pumping more cash into the economy at the final policy meeting helmed by Governor Masaru Hayami, whose five-year term ends on March 19. The Bank of Japan will keep the amount of its monthly government bond purchases from lenders unchanged at 1.2 trillion yen ($10.3 billion), the bank announced after its policy board ended a two-day meeting. The board's decision was unanimous. Buying government bonds is one of the few policy tools left to the bank to boost the economy since it cut interest rates to near zero in March 2001. Some economists predict Hayami's successor, Toshihiko Fukui, will come under government pressure to step up bond purchases and take other measures to help reverse almost five years of falling prices. ``The new board will likely come up with more policy steps around the summer, when the government is expected to discuss extra spending to boost growth,'' said Shuji Shirota, an economist at Dresdner Kleinwort Wasserstein.
The central bank's nine-member board will next meet on April 7-8, the first gathering to be headed by Fukui, a former deputy governor of the BOJ. Fukui has doused speculation the bank will use an inflation target, which aims to push up prices by pumping funds into the monetary system and would hurt the value of fixed-income assets, investors said. An inflation target isn't ``a magic wand,'' Fukui said last week.
Bond Rally
Japanese bonds have rallied since Fukui was nominated, pushing down the yield of the No. 246 10-year government bond to a record 0.740 percent yesterday. The yield was at 0.745 as of 2:41 p.m. in Tokyo today. Takayoshi Taniguchi, who represented the finance ministry at today's board meeting, told reporters he urged the bank to increase its monthly bond purchases by two-thirds to 2 trillion yen. Officials of the ministry and the Cabinet Office attend the bank's board meeting without voting. ``The bank will probably act in tandem with the government,'' Dresdner Kleinwort Wasserstein's Shirota said.
The new governor needs to boost investor confidence. The Nikkei 225 stock average has lost almost a quarter of its value since the current business year started last April 1 and the jobless rate rose to a record 5.5 percent in January. A drop in stocks is fueling concern that investment losses may drive some lenders into insolvency and government seizure. The Nikkei 225 declined 0.39 percent to 8446.86 as of 2:41 p.m. Growth of the world's second-largest economy will probably slow to 0.6 percent in the business year starting April 1 from 0.9 percent in the current year, the government forecast.
Reserve Target
Separately, the central bank said it raised the target of reserves it makes available to lenders to between 17 trillion yen and 22 trillion yen effective April 1, from between 15 trillion yen and 20 trillion yen currently. The change of the reserve target is ``just a technical move'' and ``doesn't mean a policy shift at all,'' Yasuo Nakayama, a Bank of Japan spokesman, said. The adjustment is to accommodate a new postal corporation that will manage the state-run postal savings and other postal businesses. The agency, which has 230 trillion yen in deposits, is regarded as an independent lender and required to pool some reserves at the central bank, matching conditions set for other financial institutions. The BOJ's total reserves have fluctuated at about 20 trillion yen since late November. Minutes of this week's meeting will be published on April 11. //www.quote.bloomberg.com