BOJ eyes policy pause, keeps outlook upbeat: sources

Mon Jul 2, 2012 4:22am EDT
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to make only minor changes to its economic and price forecasts in a quarterly review next week, and will hold off on easing monetary policy unless a sudden yen spike threatens the country's recovery prospects, commentators said.

Some market players had expected the central bank to offer further monetary stimulus at its next rate review on July 11-12 to show its determination to beat deflation.

Central bank policymakers will scrutinize the market fallout from overseas events, such as the European Central Bank's policy meeting and U.S. payrolls data later this week, in deciding whether to ease policy again.

BOJ Deputy Governor Hirohide Yamaguchi on Monday maintained the central bank's standing caution that a strong yen could hurt business sentiment, a sign the BOJ stands ready to pull the intervention trigger if risks to the fragile economy heighten.

A recent batch of upbeat data, including Monday's tankan survey, has firmed up the central bank's conviction that the economy, the world's third largest, will resume a moderate recovery without additional stimulus for now.

"So far, there's no clear sign that the economy is facing big enough trouble (that warrants further monetary easing)," said a person familiar with the central bank's thinking.

At the July meeting, the BOJ will also review its quarterly economic and price forecasts. Some analysts have said the bank could ease again because new price forecasts may show a sustained end to deflation is still distant.

BOJ officials, however, say any revision to its price forecasts alone will not automatically trigger action, which will come only when risks to Japan's recovery heighten sharply.   Continued...

The Bank of Japan headquarters building is framed by leaves in Tokyo June 15, 2012. REUTERS/Yuriko Nakao