Bank of Japan stands pat but seen keeping finger on trigger

Tue Apr 10, 2012 5:02am EDT
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By Leika Kihara and Rie Ishiguro

TOKYO (Reuters) - The Bank of Japan kept monetary policy steady as expected on Tuesday, holding off on any further steps to help meet its new inflation target and boost activity ahead of a more thorough assessment of the economy later this month.

The yen edged higher and Tokyo stock prices slid after the board's unanimous decision to stand pat, although many market players had expected the bank to wait in easing until the next rate review on April 27, when revised long-term forecasts should show that a sustained end to deflation is a long way off.

BOJ Governor Masaaki Shirakawa tried to diffuse market hopes of more stimulus for the fragile economy, saying it was hard to set a clear-cut timetable for when Japan can achieve the bank's 1 percent inflation target.

But markets are already factoring in monetary easing at the BOJ's next meeting after the finance minister piled fresh pressure on the central bank, saying he expects it to take appropriate steps to support the economy this month.

"The question now is not whether the BOJ could ease on April 27, but what the bank would do in taking further easing steps," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"Inaction would upset politicians and disappoint markets, possibly sending the dollar below 80 yen."

The BOJ maintained its assessment that the economy is showing some signs of picking up and Shirakawa offered an upbeat view on the outlook, saying that he saw a greater chance of Japan achieving a moderate recovery soon.

He offered few clues on when the BOJ will next ease, but signaled that the timing would not be determined solely by yen or stock moves, warning markets against expecting imminent action too much.   Continued...

Daiwa Institute of Research Chairman Toshiro Muto poses after an interview with Reuters in Tokyo March 30, 2012. REUTERS/Yuriko Nakao