Bank of Japan Keeps Policy Unchanged as Pressure Builds
The Bank of Japan (8301) refrained from expanding monetary easing to counter deflation, resisting pressure from lawmakers who five days ago rejected a nominee for the policy board.
The central bank kept the key rate between zero and 0.1 percent in Tokyo today. It left its 30 trillion yen ($368 billion) asset-purchase fund and 35 trillion yen credit-lending program unchanged, in line with the forecasts of 12 of 13 economists surveyed by Bloomberg News.
The yen strengthened and stocks pared gains after the unanimous decision, the first since the upper house of parliament blocked the appointment of BNP Paribas SA economist Ryutaro Kono after some lawmakers said he wouldn’t support stronger measures. The central bank may be preserving its ammunition for later in the month, when its revised price projections are likely to show a goal of 1 percent inflation is not in sight.
“The BOJ held off on additional easing to show it isn’t willing to be pushed around by politicians,” said Junko Nishioka, a Tokyo-based analyst at RBS Securities Japan Ltd. who has worked for the central bank. “The BOJ will be under pressure to ease policy at its next board meeting because of its close-to-zero percent inflation outlook.”
The yen traded at 81.26 per dollar as of 5:42 p.m. in Tokyo, from 81.77 immediately before the decision. The Nikkei 225 Stock Average dropped 0.1 percent after earlier climbing as much as 1.1 percent.
“We will take appropriate policies based on our outlook for prices and growth after carefully examining them” at the next meeting, BOJ Governor Masaaki Shirakawa said at a press conference today. “We don’t have any preconceptions” about what policy action will be taken, he said.
Prime Minister Yoshihiko Noda said yesterday that the government will hold ministerial meetings on overcoming deflation as policy makers explore ways to end more than a decade of price declines. Shirakawa will attend the gatherings as an observer and the meetings could begin as soon as this month, the Nikkei newspaper reported, without citing where it obtained the information.
Takeshi Miyazaki, a Democratic Party of Japan lawmaker and a leader of the ruling party’s anti-deflation group, called on the BOJ to do more later this month.
“The decision not to implement monetary easing is very regrettable,” Miyazaki said in an interview in Tokyo today. “This is a betrayal of the hopes of the market” he said, adding that the BOJ should pursue “bold and large-scale monetary easing” at the second gathering.
After his rejection by the board, Kono said politicians were proposing monetary policies “divorced from reality” and spreading “sweet words” that such measures could reduce the public’s burden.
The government aims to sustain an economic recovery after gross domestic product shrank for three of the past four years and an earthquake and tsunami devastated northeastern regions in March last year. At the same time, officials need to contain the world’s largest public debt, with Noda struggling to convince his party members and opposition parties to double the 5 percent sales tax.
Japan’s central bank will expand its asset purchases by 5 trillion yen at the next meeting, Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, said before today’s decision. Izuru Kato, chief market economist at Totan Research Co., expects up to a 10 trillion yen increase.
The BOJ’s Tankan (JNTSMFG) survey this month showed large manufacturers’ confidence failed to improve in March and executives see the yen averaging 78.14 per dollar this fiscal year. Akio Toyoda, the president of Toyota Motor Corp., said last month an “appropriate level” is 95 to 100.
Sony Corp. (6758), will cut 10,000 jobs worldwide, the Nikkei newspaper reported yesterday, without identifying where it obtained the information. The consumer electronics company more than doubled its annual loss forecast which was affected by the strong yen that reduces profits when repatriated.
Lawmakers last week escalated pressure for extra action by blocking the nomination of Kono and renewing calls for a more “proactive” monetary policy. Two of nine BOJ board seats have been vacant since April 5.
Consumer prices rose 0.1 percent in February before the BOJ will review its inflation outlook of 0.5 percent for the year starting in April 2013 on April 27.
“The BOJ is unlikely to remain in a wait-and-see stance for long,” analysts including Masayuki Kichikawa at Bank of America Merrill Lynch in Tokyo, wrote in a report yesterday. “In addition to the delay in the recovery of business sentiment, pressure on the BOJ is increasing both from politicians and the financial markets.”
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