BOJ to debate monetary easing, eyes on EU summit: sources

Tue Oct 25, 2011 9:13pm EDT
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan will likely debate easing monetary policy further on Thursday given the yen's renewed spike to record highs and growing doubts that European leaders will calm markets with a clear plan to rein in the region's debt crisis.

If the central bank were to act, it would likely top up its 50 trillion yen ($660 billion) asset-buying program by around 5 trillion yen, sources familiar with the bank's thinking have said.

The decision, however, will be a close call. BOJ policymakers will scrutinize the outcome of Wednesday's European summit and its market fallout in deciding whether to act now rather than later, the sources said.

Many in the BOJ have been hoping to hold off for now on using its limited policy options to support the economy, with exports holding up and fiscal spending for reconstruction from the March earthquake seen supporting domestic demand.

But the yen's renewed rise to record highs -- once last week and again in New York on Tuesday -- and the diminishing chances that Wednesday's summit will come up with a concrete plan to fix Europe's debt crisis have put pressure on the central bank for an immediate policy response.

"The BOJ shares our sense of crisis, so I'm sure they will take appropriate steps when necessary," Finance Minister Jun Azumi told reporters on Wednesday.

At Thursday's rate review, the BOJ will issue a twice yearly outlook report, where it is expected to cut its economic forecasts on slowing global growth and to project that core consumer inflation will be stuck near zero until early 2014.

While the central bank is expected to stick to its view that Japan's economy is headed toward a moderate recovery, it will stress heightening risks from abroad and from market moves -- notably the strong yen.   Continued...

<p>Japan's new Finance Minister Jun Azumi speaks during a group interview at his ministry in Tokyo September 5, 2011. REUTERS/Yuriko Nakao</p>