Bank of Ja­pan holds fire on stim­u­lus amid neg­a­tive rate

The Pak Banker - - COMPANIES/BOSS -

The Bank of Ja­pan (BoJ) re­frained from bol­ster­ing its record mon­e­tary stim­u­lus as pol­icy mak­ers gauge the im­pact of the neg­a­tive in­ter­est-rate strat­egy they adopted in Jan­uary.

Gov­er­nor Haruhiko Kuroda and his board kept the tar­get for in­creas­ing the mon­e­tary base un­changed, and left their bench­mark rate at mi­nus 0.1 per­cent, as fore­cast by 35 of 40 econ­o­mists sur­veyed by Bloomberg.

The cen­tral bank said it will add eas­ing if nec­es­sary while the lan­guage in its state­ment Tues­day in­di­cates a down­grade in its as­sess­ment of the econ­omy. With the BoJ far from its 2 per­cent in­fla­tion goal and growth stalling, most an­a­lysts have seen ad­di­tional stim­u­lus as just a mat­ter of time. The stakes are ris­ing for Kuroda, with house­hold and cor­po­rate sen­ti­ment wan­ing and in­vestors ques­tion­ing whether mon­e­tary pol­icy is reach­ing its lim­its.

"You can see from the state­ment the agony for the BoJ in the gap be­tween their hopes and the re­al­i­ties in the econ­omy and prices," said Ky­ohei Morita, an econ­o­mist at Bar­clays Plc. "Ja­panese in­fla­tion is at a level where even the BOJ has to ad­mit its weak­ness. It is lean­ing to­ward ad­di­tional stim­u­lus and I ex­pect it to be in July."

Econ­o­mists sur­veyed by Bloomberg have judged that a fur­ther cut to the neg­a­tive-rate pol­icy is the most likely tool. Kuroda said at a post-de­ci­sion briefing that he doesn't need to wait to see the full im­pact of the neg­a­tive rate be­fore act­ing again, if change is needed.

The BoJ ex­empted money re­serve funds from the neg­a­tive rate as it irons out kinks in its new pol­icy and seeks to pla­cate some in­sti­tu­tional in­vestors who are un­happy with the mea­sure. Even so, Kuroda said he hasn't changed his think­ing on the neg­a­tive rate since its an­nounce­ment in Jan­uary.

The yen ad­vanced to 113.05 per dol­lar as of 4:59 p.m. in Tokyo, about 6 per­cent stronger than it was at the start of the year -- an ap­pre­ci­a­tion that has un­der­cut the com­pet­i­tive ad­van­tage that pre­vi­ous BOJ eas­ing had won. The cur­rency's gains are a risk to growth in cor­po­rate prof­its, es­pe­cially among Ja­pan's ex­porters, and to in­fla­tion be­cause of lower im­port costs.

The cen­tral bank said it "will ex­am­ine risks to eco­nomic ac­tiv­ity and prices, and take ad­di­tional eas­ing mea­sures in terms of three di­men­sions -- quan­tity, qual­ity, and the in­ter­est rate -- if it is judged nec­es­sary for achiev­ing the price sta­bil­ity tar­get."

Since the BOJ's last meet­ing on Jan. 29, eco­nomic data have shown lit­tle mo­men­tum for a re­cov­ery from a con­trac­tion in gross do­mes­tic prod­uct reg­is­tered in the fi­nal quar­ter of 2015. The BOJ's key con­sumer-price mea­sure didn't budge in Jan­uary, and sen­ti­ment among con­sumers and mer­chants has slumped.

The cen­tral bank con­ceded in its state­ment that ex­ports and pro­duc­tion have been slug­gish, while main­tain­ing its view that there has been im­prove­ment in em­ploy­ment and in­come con­di­tions. It noted that in­fla­tion ex­pec­ta­tions have weak­ened re­cently.

Masaki Kuwa­hara, an econ­o­mist at No­mura Hold­ings Inc., said the BoJ has ef­fec­tively cut its eco­nomic as­sess­ment. "The down­grade may mean that the like­li­hood of fur­ther mon­e­tary eas­ing in­creases," Kuwa­hara said. "Spring wage talks are look­ing dull, and the price trend may weaken in the com­ing months."

The de­ci­sion to adopt a neg­a­tive rate - - a 0.1 per­cent charge on a por­tion of money that com­mer­cial banks park at the BOJ -- had an im­pact even be­fore it took ef­fect in mid-Fe­bru­ary. Yields on more than 70 per­cent of govern­ment debt dropped below zero and bank shares tum­bled on profit con­cerns.

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