Bank of Japan to hold fire, upholding the view recovery despite earthquake

Cherry blossoms bloom in front of the Bank of Japan in Tokyo 7 April 2011.

Credit: Reuters/Yuriko Ncube Kara Leica

Tokyo | Mon Apr 25? 2011 12: 41 am EST

Bank of Japan in Tokyo (Reuters)--sharply reduced its forecast for the current fiscal year as a result of the devastating earthquake last month but the project recovery in fall, suggesting that monetary policy was relaxed enough to keep the economy afloat at least for now.

The Central Bank will push up consumer prices forecast in its twice-yearly outlook to reflect recent increases in commodity costs, but emphasized that only offer-driven inflation that has shaken its commitment to the policy aoltraisi.

Nine members of the Council is set to refrain from further monetary easing steps and announces new loan plan details to quake-hit banks, which were detected in previous rate review.

The following possible outcomes of the meeting:

Comment policy to uphold predictability recovery: high risk

Reflects lower projected production factory of supply constraints since the earthquake, the Bank of Japan lowered its expectations for fiscal 2011/12, which began in April compared with the expected growth of 1.6 percent in January.

But the Bank of Japan sees little need to ease policy immediately also expects the economy to pick up by autumn, when the supply chain and the resulting damage to alleviate a shortage of energy.

Exports sank and exacerbated acts has risen sharply since the quake, while potential output published a record low in March.

However, the Bank of Japan eased policy days only after catastrophe March 11, was already responding proactively to the damage to growth.

The semi-annual report, the Bank of Japan would stick to its point of view, despite uncertainty about the impact of the earthquake, the Japanese economy will resume a moderate recovery next fiscal year.

It will likely reduce the average expected for the current fiscal year to somewhere between 0.5 per cent and 1 per cent projecting 0.7 per cent of analysts polled by Reuters earlier this month.

Japan will sign the Bank is likely to rebound next year growth exceeding dropped 2.0 percent in January.

Produce market reaction: bonds and the yen may fall briefly if the Bank of Japan cut its forecast of growth much more than anticipated, fuelling expectations of monetary easing.

Promote political commitment enables: likely

Bank of Japan pledged to keep interest rates virtually at zero until Japan long-term price stability, defined "almost" consumer inflation of 1%.

The Central Bank will consider tweaking definition to determine consumer inflation 1 percent average forecast by Board members, suggesting that this would be more or less a target stimulus to cancel.

We may also report twice a year, Governor Masaaki Shirakawa bostmiting told a press conference Friday to dismantle its aultralosi be considered only when high prices driven by economic growth and not only a significant increase in costs of food and fuel.

In this way, the Bank of Japan will seek to dispel speculation that he might be inclined to reverse its policy aoltraisi if rising fuel and food costs consumers pay prices towards the mark 1 per cent.

Will prompt the recent increases in commodity prices likely to Bank of Japan to revise its inflation forecast for this financial year basic consumption to about 0.5 per cent of 0.3 per cent. You can also raise consumer inflation 0.6 per cent in the following year forecast a few percentage points.

Market reaction: the markets unlikely to move little expected Bank of Japan to relax its policy aoltraisi anytime soon.

Easily access policy: highly unlikely

Bank of Japan is ready to ease policy further if damage due to earthquake and tsunami, which led to a protracted nuclear safety and energy crisis likely to continue through the summer, threatening the return of a moderate recovery of the economy.

However supply restrictions when the Central Bank believes there is much to monetary policy, rather than weak demand is key to growth-damper as it does now.

The next player on monetary easing new evidence that supply constraints hurt domestic demand is enough to aundershot economy of the Bank of Japan forecast.

Japan Bank hopes to examine the impact of the quake on the economy in April and may, where it had stood Pat on politics until the data for these months was released in July.

At present, the Bank of Japan will focus on measures to encourage banks to lend more companies hit by the quake.

They announce the lending 1 trillion yen (12 billion dollars) to banks in quake-hit area, including the length of the programme, which will be either six or 12 months.

Bank of Japan will aim to start lending program in May and will be ready to expand in the coming months if demand for loans has proved greater than expected, sources familiar with the thinking of the Central Bank said.

Market reaction: will pay lower bond yields surprise and Ellen.

1 = USD 81.845 (JPY)

(Editing by Edmund Callamand)

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