BOJ to hold fire, keep upbeat economic view despite soft GDP

Mon Feb 17, 2014 4:04pm EST
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to keep monetary policy steady on Tuesday and maintain its upbeat view on the economy, unfazed by recent signs of slower growth and suggesting that any additional stimulus will be some time away.

Data on Monday showing the world's third-largest economy grew much slower than expected in the fourth quarter underscored the challenge of ending nearly two decades of stagnation.

It also may heighten pressure on the BOJ in coming months to do more to bolster the economy, analysts say.

But the central bank is likely to stick to its view that growth will accelerate in the first quarter as consumers rush to beat a sales tax hike in April, and that it can weather any subsequent decline in household spending from the higher tax without additional stimulus.

With the yen and Japanese stock prices also having calmed down after the latest emerging market rout, the BOJ also sees little need to use its depleted policy arsenal now.

"I don't think the BOJ will adopt additional easing steps as domestic demand is strong and prices are steadily increasing, and as long as the markets are stable," said Yoshiki Shike, chief economist at Dai-ichi Life Research Institute in Tokyo.

The central bank is widely expected to maintain its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($589-$687 billion).

It may also extend special loan facilities, cobbled together between 2010 and 2012 as a way to drive funds through the banking sector to borrowers, beyond their expiry date of March by at least a year.   Continued...

A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014. REUTERS/Yuya Shino