Bank of Japan holds fire despite soft GDP, expands loan programs

Tue Feb 18, 2014 5:57am EST
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By Leika Kihara and Stanley White

TOKYO (Reuters) - The Bank of Japan maintained its expansionary monetary policy on Tuesday and extended special loan programs to help buoy economic growth, signaling its resolve to keep the positive mood generated by premier Shinzo Abe's reflationary policies from fading.

The central bank reiterated its upbeat view on the economy, unfazed by recent signs of slowing growth and suggesting that any additional stimulus will be some time away.

But the Nikkei stock average .N225 surged 3.1 percent and the yen sagged on its decision to extend special loan facilities by one year and double the size of funds available to banks.

BOJ Governor Haruhiko Kuroda said the expansion was aimed at enhancing the transmission mechanism of quantitative easing by encouraging banks to boost lending instead of sitting on piles of cash.

"We have an engine with big horsepower, so it makes sense to have stronger tires," he told reporters after the decision.

While some investors viewed the loan program expansion as a policy signal the BOJ may take a more accommodative stance if necessary, Masashi Murata, senior currency strategist at Brown Brothers Harriman, cautioned that the reaction in the Japanese government bond market suggested this was not the case.

"Bank shares drove the Nikkei, which drove the yen, but JGBs did not react much," he said.

As widely expected, the BOJ on Tuesday maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($589-$687 billion).   Continued...

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