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Japan to Reject More Easing as Quake Rebuilding Aids Economy

Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Kiyoshi Ota/Bloomberg
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Kiyoshi Ota/Bloomberg

The Bank of Japan is set to refrain from additional monetary easing next week because of signs of strength in the global economy and the boost from reconstruction work after last March’s earthquake.

Governor Masaaki Shirakawa’s board will maintain the overnight lending rate at between zero and 0.1 percent on Feb. 14, according to all 13 economists surveyed by Bloomberg News. A 55 trillion yen ($712 billion) asset-purchase program will remain unchanged, 12 said.

The Bank of England announced additional stimulus yesterday and the U.S. has pledged to keep interest rates “exceptionally low” through late 2014 as Europe’s crisis caps global growth. In Tokyo, officials may focus on more positive signs such as gains in financial markets and reduced U.S. unemployment even as strength in the yen crimps exports and analysts estimate the economy contracted for three of the past four quarters.

“The biggest downside risk is the sovereign problems in Europe,” said Mari Iwashita, chief market economist at SMBC Nikko Securities Inc. in Tokyo. Policy makers should “save the card of additional accommodative policies for March or April,” the analyst said.

Gross domestic product shrank an annualized 1.4 percent in the three months ended Dec. 31 after a 5.6 percent expansion in the previous quarter, according to the median forecast of 25 economists surveyed by Bloomberg News. That number will be announced Feb.13.

Japan’s economy was affected in the more recent period by weakness in exports, floods in Thailand that disrupted production, and reduced consumer and business confidence because of Europe’s debt crisis, said David Rea, an economist at London-based Capital Economics Ltd.

Extra Spending

The government has approved four supplementary budgets worth about 20 trillion yen to stoke demand and rebuild after the March 11 earthquake and tsunami.

In Asia, Indonesia cut interest rates yesterday, while the Bank of Korea stayed on hold. Japan stands apart in the region because officials are grappling with deflation not rising prices.

The Bank of Japan “will preserve further easing measures,” said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “The European debt crisis is in a temporary lull, the U.S. is on a recovery path and stocks are rising in Japan.”

In the U.S., the jobless rate unexpectedly fell in January to the lowest in three years. Meanwhile, Japan’s Topix Index rose yesterday to its highest level since August and the yen traded at 77.21 per dollar, about 2.4 percent weaker than a post World War II high of 75.35 in October.

Less Competitive

Companies from Panasonic Corp. to Sharp Corp. are blaming the yen for projected losses, as the currency’s gains erode profits and make products less competitive in overseas markets. The government said this week that exports in the first 20 days of January fell about 20 percent from the previous year, the fastest decline since the same period in December 2001.

“The economy may have dipped into a contraction in the fourth quarter, but it would be temporary,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “There’s no need to be overly pessimistic” as the global economy including the U.S. is picking up, Adachi said.

Japanese lawmakers are escalating calls for more aggressive measures to counter deflation after the Federal Reserve set a goal of 2 percent inflation and pledged to keep interest rates low.

The Fed “set a clear goal and made a firm promise for its commitment to fulfill the goal,” opposition lawmaker Kozo Yamamoto said at a Feb. 2 hearing in parliament.

The BOJ’s stated understanding of price stability is from above zero to 2 percent, centered on 1 percent. Prices haven’t risen at least 1 percent for any year since 1997.

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