Bloomberg: BOJ policymakers reject plan to expand asset buying

 Bank of Japan policymakers Thursday rejected a proposal by a deputy governor to expand its asset-buying program by ¥5 trillion to cope with last month's historic disaster.

                                                                                             Credit: Reuters/Issei Kato/Files

Buildings are reflected on a Bank of Japan board in Tokyo December 30, 2008.

 

 The other eight members of the Policy Board voted against Deputy Gov. Kiyohiko Nishimura's proposal to increase a ¥40 trillion program to inject cash into the market, according to a statement issued after the BOJ Policy Board meeting. The policymakers decided unanimously to keep the benchmark overnight rate between zero and 0.1 percent.

 Nishimura's proposal underscores the pressure the central bank is facing to provide further monetary stimulus as the extent of damage from last month's disaster becomes clear. Government data this week showed a record decline in industrial production in March and retail sales slumping most in 13 years.

 "The BOJ will probably implement additional easing measures should the economy's outlook deteriorate further," Izuru Kato, chief market economist at Totan Research Co. in Tokyo, said before the announcement. "It will likely expand the asset-buying . . . again, to ¥15 trillion."

 The BOJ predicted gross domestic product would grow 1.6 percent in the year ending next March and inflation would rise 0.3 percent when they reviewed the projections in January. Policymakers will probably cut their GDP estimate and raise their inflation outlook, economists surveyed by Bloomberg News said.

 BOJ Gov. Masaaki Shirakawa this week indicated the central bank is ready to add stimulus if necessary, signaling the possibility of increasing a growth program targeted at encouraging lending to industries ranging from energy, the environment and agriculture.

 Analysts said they don't see the Bank of Japan directly purchasing debt from the government to help fund the public burden of reconstruction. Shirakawa this week reiterated that it's "undesirable" to purchase debt directly because it could fan inflation. Buying government bonds may also discourage the government from raising taxes amid calls for Prime Minister Naoto Kan to resign over his handling of the earthquake and nuclear disaster.

 "Having the BOJ underwrite debt would effectively end any debate on raising taxes," said Ryutaro Kono, chief economist at BNP Paribas Securities Japan Ltd in Tokyo. "Embarking on debt monetization would spur inflation, drive up bond yields and invite a financial crisis."

 Risk of a rout in the bond market could be avoided by just increasing its ¥1.8 trillion in monthly government debt purchases from the market, according to Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co.

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