Reuters: US Dollar Report: UPDATE 2-BOJ dep gov rules out 'Operation Twist'; will keep easy policy

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UPDATE 2-BOJ dep gov rules out 'Operation Twist'; will keep easy policy Mar 28th 2012, 04:55 Wed Mar 28, 2012 12:55am EDT * BOJ already buying huge amount of bonds - Nishimura * Excludes sales tax hike effect in gauging price trend * BOJ's Miyao says softer yen, stock price rise to stimulate demand By Leika Kihara and Rie Ishiguro TOKYO/CHIBA, March 28 (Reuters) - The Bank of Japan is ready to keep monetary policy ultra easy for as long as necessary to beat deflation and support the economy, policymakers at the bank said on Wednesday, although a Federal Reserve style "Operation Twist" to cap long-term yields won't be required. Japan continues to face risks from global uncertainties, including the outcome of the European debt crisis and the subsequent slump in their economies and rising oil prices, Ryuzo Miyao, a member of the BoJ policy board said. Deputy Governor Kiyohiko Nishimura also voiced caution over bolder steps to stimulate the economy, such as boosting buying of long-term bonds or adopting an "Operation Twist" and added that increases in sales tax will not affect its policy. Under "Operation Twist," the Fed rebalances its portfolio with longer-dated securities to push down long-term yields. It, thus, sells short-term securities and buys longer-dated ones, neutralising the effect on its balance sheet. Nishimura told a parliament committee that Japan should not adopt such a policy as doing so risks destabilising markets and pushing up medium-term and long-term bond yields. "In guiding monetary policy, the BOJ focuses on the medium- to long-term trend of prices. That means we look at the trend of prices excluding the effect of any sales tax hike," he added. Miyao underscored the need to keep stimulus in place to boost the economy and beat deflation after the bank's surprise monetary easing last month produced positive effects such as pushing down bond yields and the yen and lifting share prices. Japan's economy is now expected to grow slightly faster in the next fiscal year than projected a month ago as rebuilding continues on the devastated northeast coast and worries recede about Europe's debt crisis, a Reuters poll found. The economy will grow 1.9 percent for the fiscal year starting in April, according to the Reuters poll of 27 economists conducted March 7-13, up slightly from a 1.8 percent expansion projected in a February survey. Although there are still risks such as rising energy prices, economists have scaled down the chances of Japan sliding back into recession to 20 percent in the next 12 months - the lowest probability since Reuters started polling on this question in October 2011, and down from 30 percent in a poll last month. POWERFUL EASING TO CONTINUE Miyao, however, offered few clues on the timing and magnitude of the bank's next action, merely saying in a speech to business leaders in Chiba, east of Tokyo, that the central bank will continue powerful easing to beat deflation. Miyao said that the February easing in which the BOJ increased its asset purchase programme by 10 trillion yen ($120.28 billion) and set an inflation goal of 1 percent, has driven down short to longer-term bond yields. "The clarification of our powerful easing stance and our bold action ... could have helped lower longer-term bond yields such as five-year bonds and increase people's willingness to take risks," he said. "If the current improvement in financial conditions continues, coupled with improving overseas economies ... corporate investment is expected to increase. The yen's retreat and share price gains may help to improve consumer sentiment ... and further stimulate domestic demand." Both Nishimura and Miyao cautioned against giving markets the impression the central bank's huge bond buying under the asset purchase programme is aimed at monetising debts. "We need to be careful so that our huge bond buying is not misinterpreted by markets as monetising debt," Nishimura said. "With this view in mind, the BOJ will guide policy appropriately to pull Japan out of deflation." He also voiced caution over boosting the BOJ's purchases of long-term government bonds, saying that the central bank was already buying a huge amount of bonds. The BOJ has kept interest rates effectively at zero and buys assets ranging from government bonds to private debt under its 65-trillion-yen ($782 billion) asset buying and loan programme. Aside from this, it also buys 21.6 trillion yen in long-term government bonds per year. Miyao, regarded as one of the BOJ board's more pessimistic members regarding Japan's economic outlook, roughly repeated the BOJ's official line on the economy, saying it is expected to gradually come out of the current standstill and resume a gradual recovery. At the March 12-13 policy meeting, Miyao had proposed a further increase in its asset buying and loan scheme by 5 trillion yen ($60 billion) to 70 trillion yen ($842 billion), but was outvoted 8 to 1. Link this Share this Digg this Email Reprints

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