UPDATE 1-BOJ likely to meet on Monday to ease policy

(For more stories on the Japanese economy, click [ID:nECONJP])

* Governor Shirakawa back from U.S. earlier than planned

* Most likely option is to expand fund supply programme

* BOJ could opt for other steps as govt may ask for more
(Adds details, background)

By Leika Kihara

TOKYO, Aug 29 (BestGrowthStock) – The Bank of Japan is likely to hold
an emergency meeting on Monday to ease monetary policy after
Governor Masaaki Shirakawa returned to Tokyo from a trip to the
United States earlier than expected.

Sources had told Reuters that the BOJ was expected to hold an
extra meeting early in the week to loosen policy as the strong
yen threatens Japan’s fragile economic recovery, and Shirakawa’s
early return has increased the chance of a Monday gathering.

The central bank’s most likely option is to expand a fund
supply programme put in place in December, through which it
offers up to 20 trillion yen ($234 billion) in three-month loans
to banks at the policy rate of 0.1 percent, said sources familiar
with the BOJ’s thinking.

But there is a slim possibility the BOJ will opt for more
aggressive measures, such as increasing its government bond
purchases or cutting its overnight call rate target, as some
government officials are already complaining that minor tweaks to
the fund supply scheme would not be enough.

The BOJ said Shirakawa arrived back in Tokyo from the United
States on Sunday afternoon, earlier than planned, but did not
comment on whether it would hold an emergency meeting on Monday.

“The governor’s schedule at the conference (in Jackson Hole)
was flexible in the first place. We understand that the governor
himself made the decision to change his schedule,” Satoshi
Yamaguchi, head of the BOJ’s media relations division, told
Reuters.

Prime Minister Naoto Kan said last week that he wanted to
meet Shirakawa as soon as he returns from his trip to the United
States, and request a “flexible” monetary policy response to the
strong yen.

Shirakawa will meet with Kan on Monday to discuss economic
and market developments, public broadcaster NHK said.

The BOJ would likely try to ease policy before the two meet
to avoid giving markets the impression it yielded to government
pressure, analysts say.

The BOJ has been considering easing policy, but had initially
hoped to wait until its regular rate review on Sept. 6-7 for more
evidence of the damage the strong yen was inflicting on business
sentiment.

But the yen’s climb to a fresh 15-year high on the dollar
(JPY=: ) last week and a slide in stock prices have alarmed some in
the BOJ into considering action. The central bank has also been
under increasing government pressure to ease policy.

Shirakawa had travelled to Jackson Hole, Wyoming, to attend a
central bankers’ gathering and was originally expected to return
to Japan on Monday.
(Editing by Chris Gallagher)

UPDATE 1-BOJ likely to meet on Monday to ease policy