TEXT-BOJ statement on monetary policy

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TOKYO, March 17 (BestGrowthStock) – The Bank of Japan eased monetary
policy further on Wednesday as expected after a drumbeat of
government pressure for fresh action to beat deflation, but the
split vote suggests the board may have had difficulty justifying
the move.

The central bank, in a 5-2 vote, decided to expand the scale
of a fund supply tool it adopted in December to 20 trillion yen
from 10 trillion yen, and the duration of the fixed-rate loans
was left at three months.

The bank’s main policy rate was kept on hold at 0.1 percent
by a unanimous vote, as widely expected.

Following is the BOJ’s statement issued after the meeting:

1. At the Monetary Policy Meeting held today, the Policy
Board of the Bank of Japan decided by a unanimous vote, to set
the following guideline for money market operations for the
intermeeting period:

The Bank of Japan will encourage the uncollateralized
overnight call rate to remain at around 0.1 percent.

2. In December 2009, the Bank newly introduced a fixed-rate
funds-supplying operation against pooled collateral (hereafter
the fixed-rate operation) to further enhance easy monetary
conditions, and has been implementing such measure to encourage a
decline in long-term interest rates.

Given that the amount outstanding of funds provided by
special funds-supplying operations to facilitate corporate
financing will gradually decline from April 2010 onward, the Bank
will expand the measure to encourage a decline in longer-term
interest rates by substantially increasing the amount of funds to
be provided through the fixed-rate operation.

3. Japan’s economy is picking up mainly due to various policy
measures taken at home and abroad, although there is not yet
sufficient momentum to support a self-sustaining recovery in
domestic private demand.

Exports and production have been increasing against a
backdrop of progress in inventory adjustments both at home and
abroad as well as improvement in overseas economies, especially
fast growth in emerging economies.

Business fixed investment is leveling out on the whole.
Private consumption, notably durable goods consumption, is
picking up mainly due to policy measures, despite the continued
severe employment and income situation.

Public investment is declining.

Meanwhile, the financial environment, with some lingering
severity, has continued to show signs of improvement. The CPI
(excluding fresh food) is declining on a year-on-year basis due
to the substantial slack in the economy as a whole but the
moderating trend in the pace of decline has continued.

4. The Bank’s baseline scenario projects that the pace of
improvement of the economy is likely to remain moderate until
around the middle of fiscal 201O. Thereafter, as improvements in
the corporate sector originating from exports are expected to
spill over to the household sector, the growth rate of the
economy is likely gradually to rise.

With regard to prices, assuming that medium- to long-term
inflation expectations remain stable, the year-on-year rate of
decline in the CPI (excluding fresh food) is likely to moderate
as the aggregate supply and demand balance improves gradually.

5. With regard to economic activity, while there are some
upside risks, such as faster growth in emerging and
commodity-exporting economies, there remain downside risks,
although somewhat diminished; downside risk factors include the
possible consequences of balance-sheet adjustments in the United
States and Europe as well as potential changes in firms’ medium-
to long-term growth expectations.

Attention should continue to be paid to various recent
international financial developments and their effects.

With regard to prices there is a possibility that inflation
will rise more than expected due to a rise in commodity prices
brought about by higher growth rates in emerging and
commodity-exporting economies.

On the other hand, there is also a risk that the rate of
inflation might decline due, for example, to a decline in medium-
to long-term inflation expectations.

6. The Bank recognizes that it is a critical challenge for
Japan’s economy to overcome deflation and return to a sustainable
growth path with price stability. To this end, the Bank will
continue to consistently make contributions as central bank. The
expansion of measure to encourage a decline in longer-term
interest rates was also in line with this principle, and, in the
conduct of monetary policy, the bank will continue to aim to
maintain the extremely accommodative financial environment.

1. Voting for the action: Mr. M. Shirakawa, Mr. H. Yamaguchi,
Mr. K. G. Nishimura, Ms. M. Suda, Mr. T. Noda, Mr. S. Nakamura.
and Mr. H. Kamezaki.

Voting against the action: None.

2. In the main text, Ms. M. Suda and Mr. T. Noda dissented
from the expansion of the measure to encourage a decline in
longer-term interest rates by substantially increasing the amount
of funds to be provided through the fixed rate operation.

Investment Advice

(Compiled by Hideyuki Sano)

TEXT-BOJ statement on monetary policy