BOJ holds off on easing despite weak inflation, sparks yen spike

Thu Jun 16, 2016 6:10am EDT
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By Leika Kihara and Stanley White

TOKYO (Reuters) - The Bank of Japan refrained from offering additional monetary stimulus on Thursday despite anemic inflation and weak global growth, sending the yen spiking to a two-year high that clouds an already darkening outlook for the economy.

While the decision came as no big surprise, it emboldened yen bulls who were already selling the dollar after the Federal Reserve held off on raising interest rates on Wednesday and grew more cautious about prospects for U.S. growth.

BOJ Governor Haruhiko Kuroda joined a chorus of jawboning by Japanese policymakers aimed at dissuading investors from pushing up the yen too much, stressing his readiness to ease policy again if excessive yen gains threaten prospects for achieving the bank's ambitious 2 percent inflation target.

He also said the BOJ is in close contact with other central banks, including the Bank of England, on contingency plans to soothe financial markets should Britain vote to leave the European Union at next week's referendum.

With polls showing the "Leave" camp pushing ahead, few had expected the BOJ to risk easing policy before the June 23 vote.

"If events like a Brexit vote disrupt dollar procurement of Japanese or any other countries' banks, we have ample tools available to deal with it," Kuroda told a news conference.

The BOJ maintained its massive asset buying program at its two-day rate review that ended on Thursday, pledging to increase base money at an annual pace of 80 trillion yen ($753 billion).

It also left unchanged a controversial 0.1 percent negative interest rate applied to some of the excess reserves financial institutions park with the central bank.   Continued...

A businessman walks past the Bank of Japan (BOJ) building in Tokyo, Japan, March 23, 2016.   REUTERS/Toru Hanai/File Photo