Improving Econ Conditions Prompt BOJ To Forgo Further Easing

TOKYO (Nikkei)--The Bank of Japan left monetary policy unchanged Thursday as the economy continues to improve on solid domestic demand, leaving the option of further easing at its disposal if necessary.

In its interim evaluation of the April Outlook for Economic Activity and Prices, released Thursday, the BOJ policy board downgraded its fiscal 2012 forecast for the consumer price index to a median 0.2% increase from 0.3%. The fiscal 2013 projection was left unchanged at 0.7%.

Market participants had anticipated additional easing if the forecast failed to reach 1%, the central bank's effective target inflation rate. It eased monetary policy in February and April even though domestic economic conditions were close to the scenarios the central bank had envisioned, fueling market expectations for similar action this time around.

But by leaving the policy unchanged, the BOJ signaled that it may stand pat for now unless the economy shows signs of deteriorating.

Furthermore, the 1% target "isn't too far off, with the high possibility of achieving it," BOJ Governor Masaaki Shirakawa told a post-meeting news conference.

The central bank, however, amended some parts of its asset-purchasing program in an apparent effort to enhance its easing effects within the existing framework. To prevent bidding shortfalls when conducting the program, the BOJ reduced the provision of fixed-rate funding through market operations by 5 trillion yen, while raising the amount earmarked for treasury bill purchases by 5 trillion yen instead.

Central banks in Europe, China, South Korea and Brazil have lowered their policy rates against a backdrop of Europe's protracted financial woes and a slowdown in emerging economies.

The yen could face upward pressure if market participants gain the perception that the BOJ is less willing to go the easing route.

(The Nikkei, July 13 morning edition)

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