LDP looks for action from Bank of Japan

Tokyo's stock market eased ahead of Thursday's Bank of Japan policy board meeting

By staff and wire reports

TOKYO, Japan -- A member of Japan's ruling Liberal Democratic Party said Thursday he hoped the Bank of Japan would take some action at its Policy Board meeting in response to the U.S. interest rate cut.

The Bank of Japan meets later Thursday. The Tokyo stock market eased to be 50 points or 0.4 percent lower at midday.

LDP financial committee chairman and former finance minister Yoshiro Hayashi said he believed the bank will decide to increase the target for the current account balance from the current $40 billion (5 trillion yen).

The bank's meeting comes at a time of weakening economic sentiment, with the next Tankan survey due out on Monday expected to show a further fall in business confidence.

The Ministry of Economy, Trade and Industry reported Thursday morning that industrial output in May fell 1.2 percent from April, seasonally adjusted.

This was worse than the ministry's earlier projection of a 0.3 percent gain.

Industrial output declining

It said industrial output was in a "declining trend" but still expects output to grow 0.3 percent in June before falling slightly again in July.

SG Securities senior economist Shuji Shirota told CNN that the economic slowdown was "sharper than everyone thinks".

He said the BoJ was not likely to act straight away. It was more likely to take steps on monetary easing at its July meeting, after the next Tankan result is known.

The LDP's Hayashi told Reuters he personally thought the central bank should take additional easing steps to rescue Japan's flagging economy, now teetering on the brink of recession.

In March, the BOJ effectively returned to zero rates, which it had abandoned last August, by boosting its target for banks' reserves parked at the central bank.

In another policy development Thursday, the LDP's stock market support panel endorsed a proposal by the government's Financial Services Agency to invest $16 billion (2 trillion yen) to help set up a body to buy part of Japanese banks' shareholdings.

The agency said Tuesday it wants Japanese banks to sell shares worth between more than $100 billion to the equity-buying body by 2004.

The proposal is designed to lessen banks' vulnerability to stock market swings.

Reuters contributed to this report.