DJ: BOJ Stands Pat In Feb As Likelihood Of More Easing Grows

TOKYO--The Bank of Japan Thursday kept its monetary policy unchanged and offered a more optimistic assessment of the economy, but expectations for more easing steps are unlikely to let up as the government prepares to install a team that's willing to undertake aggressive measures atop the central bank.

Not much action was expected at the central bank's February policy board meeting, with the administration of Prime Minister Shinzo Abe set to replace the BOJ's governor, Masaaki Shirakawa, and two deputy governors next month with those who are more inclined to loosen monetary policy.

Those considered to be strong candidates for the governor's post, including former Deputy BOJ Gov. Toshiro Muto and Asian Development Bank President Haruhiko Kuroda, are all pressing the bank to act more decisively to end two decades of sluggish growth.

The first policy meeting under the new leadership is expected to be on April 3-4. "Everything starts from there," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

The BOJ's inaction Thursday was just as market participants had widely predicted, with less than a month having elapsed since it introduced a landmark 2.0% inflation target and took additional easing steps.

But not every one of the bank's nine-member policy board was content with sitting still. For a second straight month, Ryuzo Miyao proposed that the bank keep its policy rate around zero until the targeted inflation rate is in sight. Mr. Miyao's proposal was voted down 8-1.

The board kept the size of the asset purchase program--its main tool for monetary easing--at Y101 trillion by the end of the year and also voted unanimously to leave its policy rate, or the unsecured overnight call loan rate, unchanged in a 0.0%-0.1% range.

Intense political calls for action and Japan's economic weakness have kept the bank under pressure for months. Data released earlier in the day showed that the world's third-largest economy shrank at an annualized 0.4% in the October-December period, marking the third straight quarterly decline amid continued economic uncertainties overseas.

Steps taken by the central bank over recent months and persistent speculation that it will give in to political pressure and further ease policy have helped weaken the yen to the lowest level in years and has sent the Tokyo stock market higher. Those market moves have been so sharp that analysts are watching whether Japan's economic policy will draw overseas criticism at a planned meeting later this week of the Group of 20 industrial and developing nations.

Still, the BOJ raised its view on the economy for a second straight month, saying it "appears to have stopped weakening." In the previous month the bank said the economy "remains relatively weak."

Specifically, it upgraded its assessment on exports, industrial production, and overseas economies.

In addition, "in global financial markets, investors' risk aversion has abated, although developments require continued attention," the bank said.

The focus of attention among analysts and even government officials, however, has already shifted to what additional measures the bank should implement under a new governor if it wants to get Japan's economy going.

"We won't request specific policy tools for the bank," a senior government official said recently. But removing the 0.1% interest being paid on excess reserves commercial banks hold at the BOJ "is clearly one option," the official added.