Japanese Finance Minister Jun Azumi called on the central bank to further ease policy moments before the Bank of Japan refrained from adding monetary stimulus.
“The BOJ must firmly pursue monetary easing to achieve its 1 percent inflation goal,” Azumi told lawmakers in parliament in Tokyo today. The central bank left its asset-purchase and credit-loan programs unchanged, as anticipated by all 14 economists surveyed by Bloomberg News.
Azumi told reporters after the decision that the BOJ had already taken “drastic” steps last month when they pledged to increase their purchases of government bonds and reiterated that he hopes they will take “appropriate” policy measures. Half of the economists surveyed anticipate the central bank will add stimulus by July, when its price forecasts will indicate any progress in countering decade-long deflation.
The finance chief’s call for more easing “is a reflection of most market participants and maybe even the public in Japan, in that they want the BOJ to do something to stimulate the economy,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. “One of the BOJ’s important roles is to prevent the strengthening of the yen with further easing.”
The BOJ kept its asset-purchase fund at 40 trillion yen ($501 billion), after expanding it by 10 trillion yen last month, and a credit-lending program at 30 trillion yen, it said in a statement in Tokyo today. The policy board kept the key overnight lending rate between zero and 0.1 percent.
“The BOJ already implemented drastic monetary easing measures last month,” Azumi told reporters. “I expect the central bank to take appropriate steps in a timely manner.”
The Japanese currency traded at 79.54 per dollar as of 12:34 p.m. in Tokyo, climbing immediately after the BOJ decision. The yen has advanced more than 2 percent in the past month amid growing instability in Greece. The Nikkei 225 Stock Average fell to a four-month low last week and dropped 1.5 percent today.
“There is absolutely no change in the BOJ’s stance to pursue powerful monetary easing,” Governor Masaaki Shirakawa said at a press conference after the monetary meeting today when asked why the bank’s statement only said it will “conduct policy in an appropriate manner.”
The statement also didn’t mention a 1 percent inflation goal announced in February.
The central bank “probably wanted to control the fire of unlimited expectations for additional easing from politicians and the market,” said Katsutoshi Inadome, a fixed-income strategist in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co.
Fitch Ratings yesterday lowered Japan’s credit rating and escalated pressure on the government to raise the sales tax, as the Organization for Economic Cooperation and Development warned the nation’s debt is heading into “uncharted territory.”
Prime Minister Yoshihiko Noda also said today the central bank and government need to work together to overcome deflation and that he hopes the central bank will do what it can to achieve a 1 percent inflation goal unveiled in February.
“Until the sales tax bill passes through parliament, it’ll be a tough situation for the BOJ,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former official at the central bank. “There’s a good chance that the BOJ will be pushed into additional easing if political pressure increases.”
Japan must uphold its pledge to start raising the sales tax in 2014 to control a public debt burden forecast to exceed 220 percent of gross domestic product next year, the Paris-based OECD wrote in a report yesterday. Noda’s plans to increase the levy have been met by opposition from lawmakers.
“Developments in Europe are the key factor in determining when more BOJ stimulus will come” because a slowing global economy may make it harder for the central bank to achieve its 1 percent inflation goal, said Akio Makabe, an economics professor at Shinshu University in central Japan.
Concern that Europe’s debt crisis will spread has prompted investors to seek refuge in safe assets. Japan’s 10-year bond yields fell to a nine-year low and the same-term yield for German bunds dropped to all-time low last week. A regular BOJ buying operation, known as Rinban, on May 18 didn’t attract enough offers, which hasn’t happened since 2006.
The central bank doesn’t think it’s difficult to fulfill asset purchases as planned, Shirakawa said. He indicated a failure to draw sufficient offers was temporary by saying that this was caused by low yields and a so-called flight to quality.
Analysts including Yoshiki Shinke, chief economist at the Dai-Ichi Life Research Institute in Tokyo, forecast Japan’s economy to slow because reconstruction demand will fade after it grew at an annualized 4.1 percent pace in the three months ended March 31.
Renesas Electronics Corp., the world’s biggest maker of automotive microcontrollers, plans to cut about 6,000 jobs or the 15 percent of total workforce, the Yomiuri Newspaper reported yesterday without identifying its source.