PREVIEW-BOJ set to hold fire after Fed move, detail asset plan

* What: Two-day Bank of Japan policy meeting

* When: Nov. 4-5, decision expected 0330-0500 GMT on Nov. 5

* Policy seen on hold; more details on ETFs, REITs buying

* BOJ seen buying high-rated REITs; Topix, Nikkei linked ETFs

By Leika Kihara

TOKYO, Nov 4 (BestGrowthStock) – The Bank of Japan will probably hold
off with new policy steps on Friday when it ends its two-day
meeting shortly after the Federal Reserve said it would buy
further $600 billion in government debt to help the U.S. economy.

Japan’s central bank has announced its own, more modest
5-trillion yen ($62 billion) asset buying plan last month and
brought forward its policy review from mid-November to get the
scheme under way as soon as possible.

The rescheduled meeting also gave Japan’s central bank a
chance to act quickly in case the Fed’s Nov. 3 move triggered a
dollar sell-off and pushed the yen to new highs.

Such a scenario, however, now appears unlikely given that the
U.S. central bank’s monetary easing more or less met market
expectations, leaving the yen broadly steady.

With markets relatively calm, the focus will be on any signs
whether and in what circumstances the BOJ would consider relaxing
its policy further.

Here are possible outcomes of the Nov. 4-5 policy review.

DO NOTHING, FORMALLY SIGN OFF ETF, REIT PURCHASES

POSSIBILITY: HIGHLY LIKELY

At the Oct. 28 rate review, the BOJ announced plans to buy a
broad range of assets from government debt to BBB-rated corporate
bonds as well as exchange-traded funds (ETF) and real estate
investment trust funds (REIT).

It has already secured the government’s approval for
purchases of up to 450 billion yen of ETFs and 50 billion yen in
REITs by the end of next year. The BOJ board will formally sign
off such purchases and provide more details.

Given the BOJ has never bought REITs before, it will likely
play it safe and buy those rated AA or higher. As for ETFs, it is
likely to announce that it will buy funds linked to the Topix and
Nikkei 225 stock indices.

Governor Masaaki Shirakawa is likely to repeat Thursday’s
assessment that Japan’s economic recovery should continue, though
there was some slowdown in exports and output ahead. He may also
stress the bank’s readiness to buy more assets than planned in
case economic conditions worsened. [ID:nN25168493]

MARKET IMPACT: Little reaction expected.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Fed, BOJ balance sheets:

http://link.reuters.com/ved62q
For more stories on the Japanese economy: [ID:nECONJP]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

EASE POLICY BY TOPPING UP ASSET BUYING POOL, OTHER MEASURES

POSSIBILITY: UNLIKELY

A surprisingly aggressive Fed move could have spurred the BOJ
to boost the asset buying scheme even before it started, but that
appears unlikely given market calm.

Another way of mitigating the upward pressure on the yen
would be to cut interest paid on banks’ reserves held with the
BOJ, though the central bank is unwilling to do so as it sees
more harm than good in pushing down rates exactly to zero.

MARKET IMPACT: Possible dampening effect on the yen expected
to be small and short-lived. Even if the BOJ boosts its fund, it
is dwarfed by $1.7 trillion the Fed has so far pumped into the
U.S. economy and $600 billion it committed this week.

REVERT TO FULL-BLOWN QUANTITATIVE EASING, OTHER EASING STEPS

POSSIBILITY: HIGHLY UNLIKELY

Economists argue that the central bank is already in a
quantitative easing mode as the size of its asset buying scheme
effectively will serve as a gauge of how loose its policy is.

However, the BOJ is seen very unlikely to revert to
full-blown quantitative easing of 2001-2006 when targeted
commercial banks’ deposits with the BOJ. [ID:nTOE69S09H]

The BOJ believes the five-year campaign failed to defeat
deflation and now opts for more limited and focused approach.

The central bank is also wary of buying foreign debt – a move
advocated by some market players as a way to weaken the yen.

MARKET IMPACT: The surprise effect would hit bond yields and
the yen, though the effect would probably wear off quickly.
(Editing by Tomasz Janowski)
([email protected]; +81-3-6441-1828; Reuters
Messaging: leika.kihara[email protected]))
($1=80.39 Yen)

PREVIEW-BOJ set to hold fire after Fed move, detail asset plan