TOKYO, July 15 - The Bank of Japan kept its monetary policy unchanged on Tuesday, a widely expected move following a surge in share prices and a string of data showing signs of improvement in the Japanese economy. Surging long-term interest rates in recent weeks had prompted speculation that the BOJ might act to prevent higher rates from damaging the balance sheets of the nation's fragile banks. But an almost 30 percent rise in the stock market's key Nikkei average <.N225> in the last 10 weeks -- rallying from two-decade lows -- has helped mitigate possible losses, while indicators showing a pickup in business sentiment and investment have brightened the economic mood.
BOJ Governor Toshihiko Fukui and Finance Minister Masajuro Shiokawa agreed at a meeting last week to just keep a close eye on the Japanese government bond market, indicating they were not too concerned about the rate rise. The Policy Board decision, after a two-day meeting, was unanimous. It said it would continue to keep its target volume of current account deposits parked at the BOJ at 27-30 trillion yen ($229-255 billion) as decided at its May 19-20 meeting. Such deposits comprise bank reserves and reserves put up by other financial institutions such as brokerages. The BOJ will provide more liquidity than the target if there is instability in financial markets, it said.
The BOJ has pledged to maintain its current quantitative easing policy until changes in consumer prices stabilise near zero percent. The economy has struggled with deflation for over four years. Since Fukui took office on March 20, the BOJ has eased policy twice, decided to buy riskier assets in its money market operations and expanded its buying of shares directly from banks. The BOJ last eased in May, in what Fukui called a pre-emptive move to stem any fallout after the government decided to bail out the Resona banking group. ($1=117.70 yen)//