BOJ Cuts Economic View for Second Month While Keeping Policy

Japan’s central bank lowered its assessment for the nation’s economy for a second straight month while refraining from boosting monetary stimulus, citing easy domestic financial conditions.

Bank of Japan Governor Masaaki Shirakawa and his policy board kept the central bank’s asset-buying fund at 20 trillion yen ($257 billion), and its credit-lending program at 35 trillion yen, it said in a statement in Tokyo today. The benchmark interest rate was held at a range of zero to 0.1 percent. The unanimous decisions were in line with predictions of all 14 economists surveyed by Bloomberg News.

Companies are cutting their profit and spending forecasts for the year as a yen near a postwar record against the dollar and slower overseas demand have eroded the confidence of the nation’s manufacturers, the central bank’s Tankan survey showed last week. Shirakawa last month signaled the bank is ready to do more to counter the fallout from Europe’s deepening sovereign-debt crisis.

“There’s a chance for additional easing by the end of March,” Mari Iwashita, chief market economist at SMBC Nikko Securities in Tokyo, said before the report. “That timing will probably get pushed forward if financial markets get volatile” and the “BOJ will probably stay on alert” into the new year, she said.

The government sold the Japanese currency in the market at least three times this year. The BOJ has supported efforts by expanding its asset-purchases, its main policy tool. The Finance Ministry said yesterday it is preparing to bolster its intervention war chest to a record high, an indication it remains vigilant about volatility in the yen.

Exports Flat

The BOJ downgraded its economic assessment today, saying that the pick-up in activity has paused. It also said that exports and production have remained “more or less flat” and that the improvement in business sentiment has slowed.

Japan’s exports fell 4.5 percent in November from a year earlier, the second straight month of decline, the Ministry of Finance said today in Tokyo.

The yen weakened against the dollar and the Nikkei 225 Stock Average tumbled earlier this week after the death of North Korean leader Kim Jong Il fueled concern about political instability in East Asia.

In Europe, governments agreed to bolster their anti-crisis arsenal this week, channeling 150 billion euros ($197 billion) to the International Monetary Fund. Still, the U.K. refused to commit, in a sign of the difficulty of attracting outside cash to ease the region’s debt crisis.

Haven Currency

“Investors will keep avoiding taking risks” as concerns about the Europe’s debt development linger, said Takehiro Sato, chief economist at Morgan Stanley MUFG Securities Co. in Tokyo. “The yen will continue to be preferred as a haven currency.”

Large manufactures expect the yen’s exchange rate to trade at 79.02 per dollar on average in the year through March 31, the Tankan report showed.

“This year we truly felt the weight of the yen as a heavy burden on our shoulders,” Toshiyuki Shiga, chief operating officer of Nissan Motor Co., said Dec. 15.

The central bank has allocated about 45 percent of the 20 trillion yen it has budgeted in its asset-buying program for government bonds. It sets aside the rest to purchase corporate debt, exchange-traded funds and real estate investment trusts.

“There aren’t many policy steps available to the BOJ,” said Masaaki Kanno, chief economist at JPMorgan and a former BOJ official. “The BOJ will probably focus on Japanese government bonds as a target for purchases.”

The central bank may extend the maturities of bonds it buys to 5 years to lower borrowing costs further, according to Kazuhiko Sano, chief strategist at Tokai Tokyo Securities. Under the facility it currency purchases bonds with the duration of up to two years.

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