by Masahiro Hidaka and Mayumi Otsuma
April 2 (Bloomberg) -- Bank of Japan policy makers will consider raising their economic assessment next week after mounting evidence that the export-led recovery exceeds their expectations, three people familiar with the matter said.
The board may stop saying the expansion will “remain moderate” in coming months at the April 6-7 meeting because demand from emerging markets is spurring exports and production, according to one of the people, who spoke on condition of anonymity. The central bank’s Tankan survey yesterday showed big manufacturers became the least pessimistic since 2008.
Signs of a sustained recovery may be enough for Governor Masaaki Shirakawa to put off any decision to increase the central bank’s liquidity injections until the following policy meeting at month-end. Board members remain open to adding more cash because of the nation’s persistent deflation, according to the people.
“Robust demand from overseas, especially from China, is driving Japan and the benefit is gradually spreading to households,” said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. “There won’t be any change to rates and other credit policy next week,” he said, adding that he anticipates the BOJ will raise its assessment.
The board’s April 30 meeting includes a discussion of members’ semiannual economic projections, and may serve as a better time to consider further changes to monetary policy. The bank last month increased by 10 trillion yen ($107 billion), to 20 trillion yen, a program that offers three-month loans to banks at 0.1 percent, the same as the benchmark interest rate.
Prime Minister Yukio Hatoyama’s government will probably sustain pressure on the bank to bring an end to consumer-price declines this year, economists said. Finance Minister Naoto Kan repeatedly urged the BOJ to step up its efforts to defeat deflation, which threatens to erode corporate earnings and make debts harder to pay off, before the March move.
The semiannual outlook “will provide the bank with a good opportunity to take further policy easing,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, who has previously worked at the Bank of Japan. “Political pressure on the bank to do more will undoubtedly increase” ahead of a July upper-house election, she said.
Term of Loans
The BOJ is reluctant to extend the period of loans beyond three months, the people said. Such a step may hamper the money market’s ability to function without the central bank’s lifeline.
Should the central bank ease policy further, some board members are likely to dissent because of the economy’s improvements, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. Members Miyako Suda and Tadao Noda opposed last month’s credit expansion.
“The number of dissenters may increase from the March board meeting,” Muto said.
The Tankan index of sentiment among large industrial companies rose in March to minus 14, the fourth quarterly gain and the highest level since September 2008, the month when Lehman Brothers Holdings Inc. collapsed. The negative figure means pessimists still outnumber optimists.
The Nikkei 225 Stock Average climbed 1.4 percent yesterday to the highest level since October 2008 as the survey reinforced optimism that exports will sustain Japan’s recovery from its worst postwar recession, even amid lingering deflation.
Renesas Electronics Corp. is among exporters benefiting from Asian demand. The company forecasts revenue may climb about 10 percent in its first year of operations, thanks to demand from China and chips used in factory equipment, President Yasushi Akao said this week.
The central bank said last month that the economy is “picking up” because of policy stimulus measures at home and abroad and there is “not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.”
JPMorgan Chase & Co. economists yesterday boosted their estimates for economic growth for the first half of 2010 to an annual rate of 2.75 percent from 1.6 percent. In a research note, the analysts said the expansion may slow to around 2 percent in subsequent quarters on “reduced fiscal stimulus to consumption and public works and a more modest contribution from net trade.”
The improvement may prompt BOJ officials to predict price changes will approach zero percent next fiscal year when they update their outlook later this month, one of the people said. Currently they predict a 0.2 percent decline in consumer prices excluding fresh food next fiscal year, following a 0.5 percent drop in the period ending March 2011.
Any upgrade to the price assessment is unlikely to be big enough to herald an end to the bank’s policy of keeping interest rates near zero. The board considers inflation to be stable within a positive range of up to 2 percent, with a median of 1 percent.
Japan, the only Group of Seven nation still reporting consumer-price declines, is easing monetary policy just as its counterparts in Asia and elsewhere are beginning to tighten credit.
“The BOJ is making it clear that it will maintain an accommodative stance, while the central banks of the U.S. and Europe are exploring ways to exit,” said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. “The prevailing view is that the BOJ will keep an ultra-low interest-rate policy for longer than anyone else in the world.”