Japan Government Keeps Up Pressure, BOJ Seen on Hold
Japan’s government on Friday kept up pressure on the central bank to further support an economic recovery, but the Bank of Japan appears set to hold monetary policy steady at its regular policy meeting next week.
With market jitters over Greek debt swap talks easing, the yen weakening and share prices rising, the central bank is unlikely to move again after last month’s surprise easing, sources familiar with its thinking say.
BOJ officials have signalled that the bank may ease more frequently to beat deflation even when the recovery is on track, leaving some analysts to believe it may respond to calls from politicians for another “big bang” stimulus next week.
But many in the bank feel they have done their part for now and prefer to save their limited policy options for later, unless fresh developments in Europe’s debt crisis or a big disappointment in US payrolls data jolt financial markets.
“October-December GDP was revised up and the BOJ may raise its assessment on output. When it sees the outlook brightening, it’s hard to justify easing again,” said Junko Nishioka, chief economist at RBS Securities Japan.
Finance Minister Jun Azumi said on Friday the BOJ’s easing in February helped improve the economy by affecting stock and currency markets, but expressed hope for further action in coming months.
“I expect a lot of bright signs to emerge towards the spring,” Azumi told reporters after a cabinet meeting. “Under such circumstances, I expect the central bank to take timely and appropriate policy steps.”
Economics Minister Motohisa Furukawa also said he continued to expect the BOJ to pursue monetary policy supporting growth.
“The government and the BOJ share a common understanding that we both must work as one to end deflation as soon as possible and achieve mild inflation,” he told a news conference.
The comments came after ruling party heavyweight Seiji Maehara said on Thursday the BOJ was not buying enough bonds and that it needed to continue acting.
The BOJ surprised markets last month by boosting asset purchases by JPY10 trillion (US$123 billion) and in line with political pressure set a 1 per cent inflation goal, suggesting more vigorous efforts to pull Japan out of deflation.
With output rising, exports seen improving and Greece seen averting a disorderly default, it is expected to hold fire next week and instead extend a loan scheme for growth industries.
“The BOJ must have more confidence in Japan’s recovery. It wouldn’t make sense for it to ease again,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.
Some lawmakers have said the BOJ should ease policy for two straight months to show its determination to beat deflation and boost stock prices as companies close their books in March.
But such calls are in the minority, with many government officials happy as long as the BOJ signals its readiness to act again in coming months should the need arise.
Some market players still see scope for more easing next week because the BOJ, with its new price goal, appears willing to act more frequently even when the economy is recovering.
“It’s hard to beat deflation with increases in asset purchases alone. But additional easing is needed and markets want it,” said Takehiro Sato, chief economist at Morgan Stanley MUFG Securities in Tokyo, which expects another increase in bond purchases as early as next week.
Many analysts expect the BOJ to ease again in April, if not next week, by topping up its asset buying scheme and extending the maturity of government bonds covered by the programme.
But some analysts say the central bank has drawn itself into a dilemma, needing to please politicians with more easing while also keeping market fears of debt monetisation at bay.
“The BOJ has boosted bond buying to an extent that any further increases risk triggering rises in yields at the long end of the curve,” said Izuru Kato, chief economist at Totan Research Institute in Tokyo.
“But whenever it decides not to act, it will need an explanation that doesn’t disappoint people who had expected more stimulus. That’s quite a tough task.”