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Resistance to Boosting BOJ Stimulus Said to Increase

A file photograph shows Masaaki Shirakawa, governor of the Bank of Japan, speaking during a news conference in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg
A file photograph shows Masaaki Shirakawa, governor of the Bank of Japan, speaking during a news conference in Tokyo. Photographer: Haruyoshi Yamaguchi/Bloomberg

     April 28 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa may find resistance among board members to expanding an emergency loan program after economic reports indicated the recovery is strengthening.

More members may oppose boosting the fund after two voted against doubling it to 20 trillion yen ($214 billion) last month, a person familiar with the matter said. The bank has yet to fully judge the impact of that step, said a second person informed of the matter. They spoke on condition of anonymity because the talks before the April 30 BOJ meeting were private.

The potential split reflects signs of a rebound -- including unemployment at an 11-month low and the biggest gain in retail sales in 13 years -- with a lingering threat of deflation. Some board members may argue that enlarging the bank-loan program would help assure consumer prices rise, said economist Hiroaki Muto.

“We can’t completely rule out the chance that the BOJ will take more action this week, as the end of deflation is still far away,” said Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “But more board members will oppose easing amid improving signs for prices and economic growth.”

The central bank may upgrade its twice-yearly outlook for gross domestic product and prices at the meeting. Policy makers will predict an inflation rate of at least zero for the year ending March 2012, up from the current estimate for a 0.2 percent drop, according to 14 of 16 economists surveyed by Bloomberg News.

Fall Short

The projections are likely to fall short of the 1 percent rate that the central bank regards as meeting price stability, according to the median estimate of board members. The International Monetary Fund said last week that the BOJ must remain open to widening monetary easing to beat deflation.

Prime Minister Yukio Hatoyama’s government wants even higher inflation, with Finance Minister Naoto Kan last week calling for price gains of as much as 2 percent and the ruling Democratic Party of Japan saying it may include a target in its platform for a July election.

“The government and the ruling party won’t stop urging more easing unless a recovery is perceived more widely and solid price increases are achieved,” said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. “The government may intensify pressure in June, when it reveals economic growth strategies and fiscal reform plans.”

European Crisis

Europe’s mounting debt woes may damp the Bank of Japan’s growing optimism. Global stocks tumbled after credit-rating downgrades of Greece and Portugal spurred concern the debt crisis in Europe will derail the global recovery. The Nikkei 225 Stock Average lost 2.8 percent at 9:45 a.m. in Tokyo, the biggest drop since February.

Shirakawa and his seven colleagues will keep the benchmark interest rate at 0.1 percent at the meeting, according to all 16 economists. Thirteen expect the bank to refrain from adding funds.

The board’s policy decision and economic forecasts are scheduled to come hours after the government publishes data for March that may point to a sustained recovery, along with persistent deflation.

Industrial production climbed 0.8 percent from the previous month, the jobless rate held at 4.9 percent and household spending rebounded, according to the median estimates of economists. Meanwhile consumer prices excluding fresh food, the bank’s preferred gauge, likely slid 1.2 percent from a year earlier, the survey of analysts showed.

Retail Sales Soar

Japan’s rebound from its worst postwar recession is spreading from exporters, with Trade Ministry figures today showing retail sales climbed 4.7 percent in March from a year ago, the biggest increase since March 1997. Seven & I Holdings Co. and Fast Retailing Co., the nation’s biggest retailers by market value, raised their profit forecasts this month.

Governor Shirakawa has repeatedly said this month that the risk of another downturn has “pretty much gone.”

Some policy makers have indicated they are open to more action to cement the recovery, while others say it’s not needed.

Deputy Governor Kiyohiko Nishimura and board member Ryuzo Miyao have said over the past month that the effect of monetary easing may be more pronounced when the economy is picking up.

BOJ Dissenters

By contrast, Miyako Suda and Tadao Noda opposed the doubling of the lending program in March, saying it wasn’t justified because of the economy’s improvement.

The IMF cited a stronger yen as a risk for Japan’s recovery this year, given the economy’s reliance on exports rather than domestic demand.

Japan’s currency has gained 1 percent against the dollar and 2.6 percent versus the euro this week on concern that Europe’s debt problems will spread. A surge in the yen to a 14-year high in November prompted the BOJ to introduce the bank-loan program, which offers funds to lenders at the 0.1 percent overnight rate, for three months.

Any further monetary easing would focus on expanding the loan facility rather than “monetizing” the nation’s record debt by increasing its monthly purchases of government bonds, Sumitomo Mitsui’s Muto said. The central bank currently purchases 1.8 trillion yen of sovereign debt each month.

“The BOJ will try to avert political calls for drastic monetization measures,” Muto said. “But the problem is, the bank can’t depend on this tool limitlessly as there isn’t much room left to beef it up.”

To contact the reporters on this story: Mayumi Otsuma in Tokyo at; Masahiro Hidaka in Tokyo at

To contact the editor responsible for this story: Chris Anstey at

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