BoJ may hold off boosting asset purchases

TOKYO: The Bank of Japan (BoJ) is expected to hold off on boosting asset purchases when it reviews policy next week, preferring instead to save ammunition as Europe's deepening debt crisis could warrant action in coming months to fend off damage to the fragile economy.

BoJ officials, keeping a wary eye on developments in Europe, are ready to pull the trigger if fears of a Greek exit from the eurozone push the yen well above its record high and hit share prices enough to threaten Japan's recovery prospects.

Otherwise, the central bank hopes to stay put and assess the effect of its monetary easing steps in February and April.

Data yesterday underscored expectations that policy will be on hold. Japan's economy rebounded from a lull in the first quarter, adding to evidence of a fragile but steady recovery, giving BoJ some breathing space although not for long as the export outlook remains uncertain.

“The economy is moving in line with the BoJ's forecast, but the bank must be watching financial markets closely as they remain jittery over Europe's sovereign debt crisis,” said Yoshiki Shinke, senior economist at Daiichi Life Research Institute in Tokyo.

“The timing of further monetary easing would depend more on (global) financial market movements than on the real economy.”

The BoJ now regards asset purchases as its key monetary easing tool and is expected to hold its main policy rate at a range of zero to 0.1%.

The BoJ last month increased government bond purchases by 10 trillion yen (US$124bil) under its asset-buying programme in a largely symbolic move to show its resolve of achieving its 1% inflation target.

The move failed to sustainably weaken the yen or nudge up share prices partly due to renewed market jitters over Europe's debt crisis, keeping the BoJ under pressure for steps to prevent a strong yen from hurting the export-reliant economy.

But central bank policymakers have signalled that they prefer to pause with the yen off last year's record high and the economic outlook brightening. - Reuters

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