PREVIEW-BOJ to hold fire unless big Fed move, eyes more easing

* What: Two-day Bank of Japan policy meeting

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

* Policy likely on hold unless big yen jump post-Fed

* BOJ to lay out details on buying of ETFs, REITs

By Leika Kihara

TOKYO, Nov 1 (BestGrowthStock) – The Bank of Japan will meet this
week just a day after the U.S. Federal Reserve policy review set
to approve a new round of monetary easing via government bond
buying.

BOJ officials say they have rescheduled their meeting to Nov.
4-5 from mid-November to heed calls from the market to speed up
the launch of its 5-trillion yen ($62 billion) asset buying
scheme and the decision had nothing to do with the Fed.

However, there is no doubt that the rescheduled meeting will
give the BOJ a better chance to act quickly if the Fed surprises
markets and triggers a new wave of dollar selling that would
drive the yen to record highs and threaten the Japanese economy.

DO NOTHING, FORMALLY SIGN OFF ETF, REIT PURCHASES

POSSIBILITY: HIGHLY LIKELY

At the Oct. 28 review, the BOJ detailed its 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 and the BOJ board will formally
sign off such purchases and announce further details.

The BOJ now aims to start buying those assets from
mid-December, rather than early next year as initially planned.

The central bank is likely to hold off with new steps if the
Fed’s anticipated expansion of its Treasury-buying scheme falls
within a forecast range and does not trigger a sharp spike in the
yen accompanied by steep declines in Tokyo stock prices.

Investor expectations centre around a Fed pledge to buy at
least $500 billion in government debt over five months and that
or a smaller commitment should maintain the market status quo.
[ID:nN25168493]

But even then Governor Masaaki Shirakawa may warn of risks to
growth and stress the bank’s readiness to buy more assets if
necessary.

MARKET IMPACT: Little reaction expected as this is a base
scenario.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Fed, BOJ balance sheets:

http://link.reuters.com/ved62q
For a special report on the Fed’s easing options:
http://link.reuters.com/pyb23q
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

EASE POLICY BY TOPPING UP ASSET BUYING POOL

POSSIBILITY: LESS LIKELY

Shirakawa has said the BOJ is ready to loosen policy by
buying more assets if economic conditions were to worsen sharply.

An aggressive Fed move, for example a commitment to buy $750
billion to $1 trillion of debt, could trigger a yen rally past
its all-time high against the dollar and spur the BOJ to double
the size of its spending plan, especially if the yen’s rise
triggered steep falls in stock market prices.

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 hundreds of billions more it may be considering.

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 the BOJ’s monetary easing.

However, even if the Fed eased its policy aggressively at its
Nov. 2-3 meeting, the BOJ is seen very unlikely to revert to
full-blown quantitative easing of 2001-2006 when it targeted
commercial banks’ deposits with the BOJ. [ID:nTOE69S09H]

The BOJ believes the five-year campaign of flooding the
economy with cash failed to defeat deflation and now advocates
more limited, but focused approach.

The central bank is also unlikely to start buying foreign
debt – an idea being floated by some market players as a way to
weaken the yen. That would influence currency moves and thus
overstep the finance ministry’s jurisdiction, something the BOJ
is unwilling to do at least for now.

MARKET IMPACT: The surprise effect would knock bond yields
and the yen down. However, the small size of the BOJ’s operations
compared with the Fed’s easing means market impact could be
short-lived.
(Editing by Tomasz Janowski)
([email protected]; +81-3-6441-1828; Reuters
Messaging: [email protected]))
($1=80.39 Yen)

PREVIEW-BOJ to hold fire unless big Fed move, eyes more easing