TOKYO, June 25 - The Bank of Japan (BOJ) kept its policy unchanged on Wednesday, signalling that the central bank sees little threat from the recent selloff in government bonds and a slowdown in exports and output. Analysts had mostly predicted no change, and said the BOJ likely took comfort in Tokyo's recovering stock prices, which have climbed back from two-decade lows. The nine-member BOJ Policy Board, which concluded its meeting around midday, voted unanimously to keep the target volume for current account deposits parked at the BOJ at 27-30 trillion yen ($229-255 billion), as decided at a meeting in May.
The BOJ reiterated in a statement that it was ready to provide more funds if needed to stem a financial crisis. "Should there be a risk of financial market instability, such as a surge in liquidity demand, the bank will provide more liquidity irrespective of the target," it said. Current account deposits comprise bank reserves and reserves put up by other financial institutions such as brokerages. The BOJ has pledged to maintain its quantitative easing policy, in which it floods the market with liquidity, until year-on-year changes in consumer prices stabilise near zero percent. Annual figures for core consumer prices have been falling for five years. Many predicted, however, that the BOJ would still come under pressure to ease its already loose monetary policy if the U.S. Federal Reserve keeps cutting rates and the domestic economy shows further signs of weakening.
The BOJ and government have said in recent reports that the economy is flat in general, but both also warn that conditions have recently weakened due to a slowdown in exports and production.
PRESSURE STILL ON
"We weren't expecting anything this time as conditions have been pretty flat, but the BOJ will likely act in the next few meetings," said Hiromichi Shirakawa, chief economist at UBS Warburg. "There's a risk of disinflation around the world, and if other central banks act the BOJ should also come under pressure and ease, at least once before September," he said. The U.S. Federal Reserve ends a two-day policy meeting later on Wednesday, and is widely expected to lower the bellwether short-term federal funds rate by either a quarter- or half-percentage point from the existing 1.25 percent.
BOJ Governor Toshihiko Fukui, who has overseen a series of rapid-fire moves since taking office in March, has repeatedly mentioned concerns about "global disinflation". But Takuji Aida, a fixed-income analyst at Merrill Lynch, said the BOJ's policies were already "bond market friendly" and that any further easing would only produce a limited effect. "The BOJ has been providing an overwhelming amount of liquidity, it's been very friendly to the bond market. But it hasn't been too successful in shifting more money into stocks," he said. "I'm not expecting it to start buying stocks or ETFs (exchange-traded funds) right away, but I think the BOJ is likely to start trying other methods." The BOJ has already shown a willingness to try new ways to boost the economy and reverse deflation.
At its previous policy-setting meeting in early June, the BOJ kept policy unchanged but announced it would broaden its money market operations by buying up to one trillion yen in asset-backed securities with credit ratings as low as BB, which is considered below investment grade. UBS Warburg's Shirakawa said the BOJ may be pressured into buying ETFs or adopting policies aimed at weakening the yen. A weaker yen helps Japan's exporters by boosting the value of their profits when repatriated. The Tokyo stock market's benchmark Nikkei average <.N225> firmed slightly in Wednesday trade, after a correction in the previous day that brought an end to a five-day winning streak.//