Japan in holding pattern as BOJ stands pat


Japan's stock market fell on Wednesday, but analysts attributed that to a holiday for the start of spring

Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- The central Bank of Japan ended a two-day meeting on Wednesday by letting its already very loose monetary policy stand.

New Zealand did decide to hike rates on Wednesday, shocking market watchers in the Asia-Pacific region (full story). Australia is expected to follow suit, with the economy Down Under proving resilient.

But Japan is still the driver in Asia, despite a decade of hard times. Economists had expected the BOJ to leave policy alone.

Its decision comes the day after the U.S. Federal Reserve Board left interest rates untouched. The Fed did, though, couch its language about the U.S. economy in more-positive terms, scrapping use of the term 'recession.'

The European Central Bank also left rates unchanged on March 7, as the world's leading sources of money waited to see if a world recovery had in fact taken hold. If it has, they will likely start raising the currently low interest rates.

Cynicism after past disappointments

Recovery is far from certain in Japan, where experts are cynical about prospects after being disappointed repeatedly in the past.

Some indicators have shown promising signs. Exports are looking stronger in the first quarter, as the customs-cleared trade surplus showed.


Japan's record jobless rate has finally eased back slightly

Those numbers also came out on Wednesday, showing an overall decline of 11.3 percent for February, over the same time last year.

The surplus was up 0.7 percent over the previous month, when adjusted for the season. Exports were surprisingly firm, up for the second month.

But experts say the BOJ will likely act cautiously, if at all, until a recovery is certain.

The most likely next step would be for the central bank to raise the amount of Japanese government bonds it buys to 1.2 trillion yen per month at its two meetings in April, J.P. Morgan economist Ryo Hino.

"The government will most likely resist any attempts to reduce the level of reserves unless there are clear signs of an improvement in the economy," Hino wrote in a report.

Buckling to pressure

The BOJ was widely viewed as having buckled to political pressure when it last moved, in a decision to ease policy, including raising its JGB purchases.

BOJ Governor Masaru Hayami has in turn said that move aided Japan's recent stock surge (full story).

Last spring, the central bank made the surprise decision to scrap targeting interest rates in favor of other approaches, such as buying more government bonds and targeting reserves.

Interest rates are already extremely low in Japan, with the cash rate at 0.001 percent. But that fact has done virtually nothing to stimulate lending.

Japanese stocks lost substantial ground on Wednesday, with investors looking to get out of positions ahead of the Vernal Equinox holiday on Thursday.

The Nikkei index closed down 2.3 percent at 11,526.78. The broad Topix index finished down 1.34 percent at 1,097.85.

Japan's top financial diplomat, Haruhiko Kuroda, said earlier in the day that he was looking to a U.S. bounce to help Japan.

"The Japanese economy is expected to bottom out and recover from the middle of the year, and stocks are rising on such expectations," he said.

He added that he hopes the Japanese yen will settle down from its bumpy ride this year.

"The United States is already in the process of recovering and bottoming out. It is desirable for exchange rates to reflect fundamentals and move in a stable manner," he said.