Bank of Japan policy seen on hold as Shirakawa gives way to bolder leadership

Wed Mar 6, 2013 5:05pm EST
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By Stanley White

TOKYO (Reuters) - The Bank of Japan is likely to keep monetary policy unchanged on Thursday, holding fire to wait for new leaders who are expected to usher in bolder measures to try to end nearly 20 years of mild deflation.

The two-day meeting that started on Wednesday is the last for Governor Masaaki Shirakawa and his two deputies. They leave on March 19 after a five-year term spent battling crises including the aftermath of Lehman Brothers' collapse in 2008 and the devastating March 2011 earthquake in Japan.

Investors expect the central bank to hold off announcing new stimulus measures until its next meeting on April 3-4, when Asian Development Bank President Haruhiko Kuroda, a vocal advocate of aggressive easing, is expected to be installed as the central bank's new governor.

He was nominated by Prime Minister Shinzo Abe to shake up the BOJ. The main opposition party, the Democratic Party of Japan, has indicated its support for Kuroda, suggesting he will be confirmed in the job.

Kuroda advocated in a confirmation hearing this week that buying longer-dated Japanese government bonds would help end deflation.

"The BOJ's new leadership is trying to generate inflation expectations, and the main tool will be aggressive buying of long-term JGBs," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

"The new leadership views deflation as a monetary phenomenon. In contrast, the BOJ under Shirakawa focused on the real economy and whether or not there was demand for funds."

The BOJ may revise up its assessment of the economy on Thursday to say gains in factory output and signs of recovery in exports suggest it is bottoming out, sources familiar with the central bank's thinking said. That would be a slightly brighter view compared with last month when it said the economy "appears to have hit bottom".   Continued...

The Japan government's nominee for the Bank of Japan (BOJ) governor Haruhiko Kuroda delivers a speech at a hearings session at the lower house of the parliament in Tokyo March 4, 2013. REUTERS/Issei Kato