Bank of Japan may keep monetary policy steady, counter yen criticism

Wed Feb 13, 2013 5:19pm EST
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to keep monetary policy steady on Thursday but may revise up its assessment of the economy and rebuff growing global concern that Tokyo is trying to deliberately weaken the yen.

Still, the central bank will likely signal its readiness to expand stimulus again if risks to its outlook heighten, keeping alive market expectations of bolder action after a new BOJ leadership takes over in April.

BOJ Governor Masaaki Shirakawa, who travels to Moscow this weekend for his last Group of 20 finance leaders' meeting, is expected to reinforce Tokyo's argument that its monetary expansion policies are aimed at pulling the country out of deflation, not at nudging down the yen.

The yen had slumped nearly 20 percent against the greenback since November, picking up speed as Japan's new government put relentless pressure on the BOJ to launch more aggressive policy easing. The swift tumble has sparked fears of competitive devalations which analysts warn could lead to a currency war.

The Group of Seven rich nations on Tuesday declared that fiscal and monetary policies would not be directed at devaluing currencies, a statement meant to soothe nerves that export-reliant Japan was directly aiming to guide the yen lower.

Japan said the statement gave it a green light to continue efforts to reflate its economy but a G7 official said it was aimed squarely at Tokyo, prompting the yen to surge.

"One option now excluded is for the BOJ to buy foreign bonds. That goes against the G7 statement," said Masaaki Kanno, chief Japan economist at JPMorgan Securities.

"Otherwise, I don't see too many restraints. The BOJ can repeat what it's been saying -- that its 2 percent inflation target is aimed at beating deflation and yen declines are only a consequence of its actions."   Continued...