Bank of Japan eases monetary policy on SARS, markets concerns

TOKYO, May 20 (AFP) - The Bank of Japan (BoJ) said Tuesday it would ease monetary policy to support the economy because of uncertainties arising from the SARS outbreak and stock and foreign exchange market instability. 

At the end of a regular two-day policy board meeting, the central bank left interest rates unchanged but said it was raising the target balance of current accounts held at the bank to "around 27 to 30 trillion yen" (231 billion dollars to 256 billion dollars) from "around 22 to 27 trillion yen". 

"Economic activity in Japan remains flat but uncertainties about future prospects have recently been increasing," the BoJ said in a statement. 

"In addition to uncertainties arising from the prospect of a recovery in the US and European economies as well as the impact of SARS on East Asian economies, unstable stock and foreign exchange markets overshadow future prospects." 

The BoJ noted that against this background the government had decided at the weekend to pump public money, estimated at 2.0 trillion yen, into troubled Resona Bank, but that with the provision of additional liquidity by the central bank "overall conditions in financial markets have remained calm so far." 

At the same time, the central bank warned that "given the significant uncertainties over economic prospects, however, careful attention is warranted because economic activity could be adversely affected if financial markets become more unstable. 

The decision to raise the target balance was passed by a majority vote, the statement added. 

There was little reaction in the financial markets to the announcement.  

Around 1:30 pm (0430 GMT), the dollar was at 117.08 yen in Tokyo, against 117.10-20 yen in New York on Monday afternoon, and sharply higher than 115.19-22 yen in Tokyo late Monday. 

"There was no reaction in the market. After Resona, investors already expected the BoJ would move," said Akihiko Sebe, a currency dealer at Mizuho Bank. 

"But lifting the liquidity target is the BoJ's worn-out policy and it was hardly a surprise for investors. Unless the BoJ decides to buy more stocks, bonds or foreign bonds, investors will not react to its moves." 

Share prices were little changed. Around 1.45 pm, the Tokyo Stock Exchange's Nikkei 225 index was up 29.57. points or 0.37 percent at 8,068.64. 

The benchmark index had ended the morning session before the BoJ announcement at 8,069.97. - AP 

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