BOJ may consider easing as global slowdown, China protests bite - Reuters

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Wed Sep 19, 2012 7:48am IST


* Decision expected around 0300-0500 GMT * Fed stimulus, China protests add pressure on BOJ * Decision will be close call with yen off highs * BOJ to cut economic view, signal readiness to act * Comments from governor's briefing seen after 0715 GMT By Leika Kihara TOKYO, Sept 19 (Reuters) - The Bank of Japan will likelyconsider easing monetary policy on Wednesday or signal itsreadiness to do so next month, as slowing global growth andrising tensions with trading partner China risk delaying arecovery in the export-reliant economy. The Federal Reserve's stimulus measures last week haveheightened pressure on the Japanese central bank to follow suitwith its own steps to support an economy feeling the pinch froma strong yen and the widening fallout from Europe's debt crisis. An escalating territorial dispute with China, Japan'sbiggest trading partner, adds to headaches for policymakers andmay nudge the central bank into action as anti-Japan protestsforce Japanese firms to suspend operations, some analysts say. But the decision will be a close call with action hardly aforegone conclusion due to reluctance within the BOJ to use itslimited policy options so soon. "The BOJ probably wanted to wait a bit longer to scrutinisemore data. But there's now more than a 50 percent chance it willease on Wednesday, given developments in China," said IzuruKato, chief economist at Totan Research in Tokyo. "Unless it's convinced that things will turn up later thisautumn, the BOJ would have to act now," he said. Kato expectedthe protests in China to inflict devastating damage on Japaneseexports in coming months. The government kept up the pressure with the financeminister signalling at a news conference on Wednesday thatfurther action is likely in coming months, if not now. "The BOJ is likely discussing what it can do, whether now isthe time (to act) or whether it should wait," taking intoaccount the stimulus measures by the Fed and the EuropeanCentral Bank, Finance Minister Jun Azumi said. If the BOJ were to act, its most likely option would be toexpand its main monetary easing tool, a 70-trillion-yen ($888billion) asset buying and loan programme, by 5 trillion or 10trillion yen with most of the increase to be for purchases ofgovernment bonds and short-term securities, analysts say. The BOJ may not extend the June 2013 deadline for meetingthe target but may scrap the minimum 0.1 percent rate for buyinggovernment bonds under the programme to smoothen purchases. OCTOBER IF NOT NOW The central bank is also set to revise down its assessmentof the economy from last month, when it said growth was startingto pick up moderately, said sources familiar with its thinking. By offering a bleaker view of the economy, the BOJ -- evenif it stands pat on Wednesday -- will keep alive expectations ofeasing next month, when it is seen cutting its long-term growthprojections in a twice-yearly outlook report, analysts say. The BOJ set a 1 percent inflation target and loosened policyin February, and followed up with another easing in April. Ithas stood pat since then on hope that exports will soon pick upand help the economy resume a moderate recovery. But the world's third-largest economy expanded less thanexpected in the second quarter and analysts now expect growth tostall for the rest of this year as Europe's debt crisis andsubdued Chinese growth cloud the outlook. The yen is off record highs hit last year, giving the BOJsome breathing space. Still, the government, which cut itseconomic assessment last week, has been piling fresh pressure onthe central bank. That could nudge the BOJ into action as many central bankersare already less convinced of Japan's recovery prospects andadmit that the timing of a pick-up will be delayed, analystssay.
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