* Policy rate unchanged at 0-0.1 pct
* Yen rises after BOJ refrains from easing policy
* Markets factoring in monetary easing on April 27
* Fin min keeps up pressure on BOJ
* Comments from Shirakawa briefing likely after 0715 GMT
By Leika Kihara and Rie Ishiguro
TOKYO, April 10 (Reuters) – The Bank of Japan kept monetary
policy steady as expected on Tuesday, holding off any new steps
to help meet its new inflation target and boost activity ahead
of a more thorough assessment of the economy later this month.
The decision was widely expected by markets, although the
dollar still slid against the yen after the announcement on
selling by traders who had speculated that the central bank
could surprise them as it did in February.
The market view was BOJ policymakers would prefer to hold
fire at least the next policy meeting on April 27, when revised
long-term forecasts should show that a sustained end to
deflation is a long way off, giving them justification to act.
Traders are already factoring in a monetary easing in late
April, as the government keeps up pressure for bolder steps to
pull Japan out of deflation.
“The question now is not whether the BOJ could ease on April
27, but what the bank would do in taking further easing steps,”
said Takeshi Minami, chief economist at Norinchukin Research
Institute in Tokyo.
“Inaction would upset politicians and disappoint markets,
possibly sending the dollar below 80 yen.”
Japan’s economy has shown some signs of recovery on
reconstruction spending after last year’s earthquake. But
business sentiment failed to match that improvement, the BOJ’s
recent tankan survey showed, suggesting that any recovery will
be modest.
The BOJ maintained its assessment the economy is showing
some signs of picking up but offered a cautious view on business
sentiment, saying it was more or less flat.
PRESSURE REMAINS
The BOJ surprised markets in February by increasing its
asset buying and loan scheme by 10 trillion yen ($121 billion)
and setting a 1 percent inflation target. It held fire last
month, as the yen’s retreat from record highs and growing signs
Japan is headed for a recovery give it some breathing space.
But renewed expectations of further stimulus by the Federal
Reserve, driven by Friday’s disappointing U.S. jobs data, have
nudged the yen to a one-month high against the dollar, keeping
pressure on the BOJ to act again soon.
Many on the BOJ board are ready to pull the trigger on any
signs that the recovery is under threat. While they stick to the
view the economy is picking up, they remain worried about risks
such as slowing Chinese growth and high oil prices.
In a sign that political pressure has not subsided despite
February’s action, Economics Minister Motohisa Furukawa said on
Tuesday he continued to expect the BOJ to take flexible, bold
steps to achieve its 1 percent inflation target.
Finance Minister Jun Azumi also voiced hope for an easing
this month, saying that April was key in gauging the outlook for
Japan’s economy because money set aside under the state budget
for reconstruction from last year’s earthquake will begin to
flow through the economy.
“In April we have to build a solid base from which the
economy can expand this year. We also have G20 meetings, and I
think the BOJ will look at this closely and respond
appropriately as needed,” he told a news conference on Tuesday.
BOJ Governor Masaaki Shirakawa may face demands for more
action when he attends, as an observer, a new government panel
to discuss measures to overcome deflation, which will hold its
first meeting by the end of this month.
The BOJ, knowing political pressure will persist, wants to
time its action wisely. It now expects core consumer inflation
of 0.1 percent for the fiscal year that began in April and 0.5
percent for the following year, well below the 1 percent target.
With few signs of domestic price pressures, the BOJ may find
it hard to justify raising its inflation forecast on April 27
unless it is accompanied by another round of stimulus.
When the BOJ next acts, it will probably again expand its 65
trillion yen asset buying and loan programme, mostly by
committing to purchase more government bonds. In doing so, it
may need to extend the maturity of bonds it buys under the
programme to five years from the current two-year timeframe as
two-year yields are already stuck at 0.1 percent.
Azumi and Shirakawa are scheduled to attend the G20 finance
leaders’ meeting to be held in Washington next week.
