BOJ Refrains From Adding Stimulus, Spurring Stock Decline

The Bank of Japan refrained from expanding monetary stimulus as signs of strength in the domestic economy outweighed the threat from Europe’s debt crisis.

The bank expanded its asset-purchase program to 45 trillion yen ($564 billion) from 40 trillion yen, according to a policy statement released in Tokyo today. Seven of 17 economists surveyed by Bloomberg News predicted monetary easing. The loan facility was cut to 25 trillion yen from 30 trillion yen.

Stocks fell after the decision, which followed South Korea’s central bank unexpectedly lowering borrowing costs today and China cutting interest rates last week. Japanese Finance Minister Jun Azumi this morning called for the central bank to do more to boost the world’s third-biggest economy and meet a 1 percent inflation goal.

“This is simply a technical move that shouldn’t be considered to be monetary easing,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. in Tokyo, and a former BOJ official. “Some market participants will be disappointed to see that the BOJ didn’t ease policy.”

The central bank this month raised its economic evaluation of all regions for the first time in more than two years, citing improvements in consumer spending and rebuilding demand from last year’s earthquake.

Bond-Buying

The yen traded at 79.34 as of 5:52 p.m. in Tokyo. The Nikkei 225 Stock Average closed 1.5 percent lower, falling for a sixth day.

Underscoring the difficulty in executing its stimulus efforts, the central bank failed on July 10 to attract enough bids in a six-month credit lending operation for the 14th straight time, following a failure of a regular monthly bond- buying operation last week.

The BOJ said it will buy more treasury bills and remove the minimum bidding yield for the securities, moves that may smooth its operations after failures at some auctions.

Japan’s central bank kept its benchmark interest rates between zero and 0.1 percent and monthly bond purchases at 1.8 trillion yen, the bank said in the statement today. At a press briefing, Governor Masaaki Shirakawa said that the BOJ won’t cut interest rates on commercial lenders’ excess reserves because of the potential adverse affect on liquidity.

Extra Easing

“The BOJ cut the amount of the credit-loan program because there were a lot of failures,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “Additional easing will depend on external factors, such as a worsening European crisis or a slowdown in the U.S.”

The Bank of England raised its asset-purchase target by 50 billion pounds ($78 billion) on July 5, the day the ECB and PBOC’s eased and two weeks after the U.S. Federal Reserve expanded a program lengthening the maturity of bonds it holds.

Tokyo-based Bridgestone Corp. (5108), the world’s biggest maker of tires, may extend output cuts in the second half as Europe’s debt crisis and China’s slowdown curb demand, Masaaki Tsuya, chief executive officer, said in an interview on June 21.

The International Monetary Fund will reduce its estimate for global growth this year, Managing Director Christine Lagarde said on July 6, citing weakness in investment, jobs and manufacturing in Europe, the U.S., Brazil, India and China.

Japan’s benchmark 10-year bond yields fell to 0.765 percent as of 4:32 p.m., the lowest since 2003. Europe’s debt woes have spurred demand for Japanese assets, regarding as a relatively safe haven in times of global turmoil.

The BOJ today kept its inflation outlook at 0.7 percent for the year starting April 2013 after setting a price goal of 1 percent in February. The bank expects 2.2 percent economic growth this fiscal year and 1.7 percent in the following 12 months.

To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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