Bank of Japan May Keep Rate Unchanged at Fukui
The Bank of Japan will probably keep interest rates on hold at Governor Toshihiko Fukui's final board meeting this week on concern that economic growth is slowing.
Fukui and his colleagues will leave the overnight lending rate at 0.5 percent, the lowest among major economies, on March 7, according to all 40 economists surveyed by Bloomberg News. Fukui, who has called for gradual rate increases since 2006, completes his five-year term on March 19.
The government has postponed proposing its candidate to succeed Fukui on signs the opposition may block its preferred choice, Deputy Governor Toshiro Muto. The new governor, juggling the likelihood of slower growth and faster inflation, will probably keep the benchmark rate on hold this year.
“Regardless of who will become its new leader, the Bank of Japan will have no choice but to shelve a rate increase for a year or so,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. The bank will “do its best to avoid a cut, given that its policy options are very limited.''
The government may nominate Yutaka Yamaguchi, who was a deputy governor from 1998 to 2003, to fend off a possible run-in with opposition parties, Jiji Press reported on March 2. The Democratic Party of Japan intensified opposition to Muto after the ruling Liberal Democratic Party forced through the passage of next fiscal year's budget bill in parliament last week.
Political Battle
“The qualifications of the next BOJ governor appear completely subordinated to the political battle that's raging at the moment,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “Whatever the outcome, the credibility of the BOJ isn't helped.''
The government cut its economic assessment for the first time in 15 months on Feb. 22, saying growth will moderate as exports and production cool.
Factory production fell at the fastest pace in a year in January, and exports to the U.S., Japan's largest market, slid for a fifth month. Consumer prices rose 0.8 percent, matching December's increase as the steepest in more than nine years, as companies passed on higher costs of gasoline and wheat instant payday loan 500 fast cash.
The economy is currently in a “soft patch'' that will probably be prolonged, Atsushi Mizuno, a central bank policy maker who last year proposed a rate increase, said last week. Financial markets will remain volatile and the U.S. slowdown will become more evident in the first half of this year, he said.
The Nikkei 225 Stock Average has tumbled 15 percent this year and the yen rose to a three-year high of 102.62 against the dollar on March 3. Those movements may be reflected in deteriorating business confidence in the central bank's next Tankan survey on April 1, strategist Mari Iwashita said.
Companies `Cautious'
“Companies may become cautious about compiling investment plans for the new fiscal year,'' said Iwashita, a senior fixed- income strategist at Daiwa SMBC Securities in Tokyo.
There's a 53 percent chance the bank will reduce the benchmark rate by December, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.
Fukui, 72, ended the central bank's deflation-fighting policy of injecting extra cash into the economy in March 2006. The bank increased the benchmark rate to 0.25 percent in July 2006 and doubled it in February last year.
The departing governor said on Feb. 22 that there is no change to the bank's stance of gradually raising rates and it must pay attention to future risks in setting policy.
“It's very regrettable that the Bank of Japan hasn't pushed forward the normalization of interest rates any further,'' Eisuke Sakakibara, the Finance Ministry's former top currency official and now a Waseda University professor, said in an interview last week. “The country's short-term rates should have been lifted to between 1.5 percent and 2 percent by now.''
The central bank will announce its policy decision on March 7 in Tokyo, probably by early afternoon. It will publish its monthly assessment of the economy at 3 p.m. and Fukui will speak at a news conference at 3:30 p.m.
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