The Bank of Japan kept its policy settings unchanged today, but said it will bring forward its next meeting to speed up the launch of a 5 trillion yen ($61 billion) asset buying plan aimed at helping the economy cope with a strong yen.
The BOJ unveiled the plan on October 5th and vowed to keep interest rates near zero as long as the economy was mired in deflation, so no one expected the central bank to ease its policy further this week.
Instead, the BOJ offered a detailed breakdown of assets it plans to buy and said it would meet on November 4th rather than in mid-November as originally planned, to speed up its purchases of less conventional assets such as exchange traded funds.
By fleshing out the plan, the central bank made it easier to justify boosting the scheme as soon as next month if the yen shoots up towards record highs, sources familiar with the BOJ's thinking have said.
The next policy review will come right after the US Federal Reserve's November 2nd meeting at which it is expected to sign off on an extension of its government bond buying scheme to prop up the sputtering US economy.
The prospect of more dollars flowing into markets has driven the UScurrency near record lows against the yen, prompting Japanese exporters such as Toyota and Nissan to talk of a looming crisis.
Speculation that the Fed will opt for piecemeal fund injections rather than a big-bang operation has given the dollar some respite, but a more aggressive action could knock it down again and force the BOJ's hand.
While the Japanese central bank did not make any reference to the Federal Open Market Committee meeting, analysts said the new date of the meeting would allow the BOJ to act quickly if necessary.
The yen took the BOJ's decision in stride, trading little changed around 81.60 to the dollar after the announcement. The Nikkei average briefly turned positive before retreating to stand flat, while government bond futures rose 0.27 point on the day.
While new economic powers such as China, India and Brazil have swiftly recovered from the global financial crisis and the economic slump that followed, Japan, the United States and other rich nations have struggled to sustain economic growth.
Furthermore, the side effects of the trillions of dollars they spent on economic stimulus and record low lending rates have aggravated strains in currency markets, fuelling fears of currency and trade wars.
The Bank of Japan is expected to signal later today its readiness to ease policy further to help the economy by trimming its economic forecasts and predicting a long exit from deflation.
It is likely to cut its growth forecast for the fiscal year to March 2012 to around 1.5 per cent from the 1.9 per cent predicted three months ago, broadly matching market forecasts.
It will also give its first forecasts for the following year, probably projecting some pick-up in growth and predicting consumer prices would rise slightly less than 0.5 per cent, far below the 1 per cent rate the BOJ wants to see before it starts lifting rates from near-zero levels.
Detailing its asset buying plan, the central bank said it would buy 1.5 trillion yen in long-term government bonds and 2 trillion yen in short-term government securities.
It also plans to spend 1 trillion yen on commercial paper and corporate debt and up to 450 billion yen on ETFs and 50 billion on J-REITs.
Reuters