WRAPUP 2-BOJ holds fire after Fed, says further easing an option

* BOJ keeps rates on hold, spending plan unchanged

* Targets high-rated REITs; Topix-, Nikkei-linked ETFs

* BOJ to start buying government bonds next week

* Gov Shirakawa says U.S., Japan not in easing competition

By Leika Kihara

TOKYO, Nov 5 (BestGrowthStock) – The Bank of Japan kept its monetary
policy unchanged on Friday and brushed off suggestions it might
need to ease more just to keep pace with the Federal Reserve’s
latest $600 billion economic stimulus installment.

Still, Governor Masaaki Shirakawa said the central bank was
ready to expand its own 5 trillion yen ($62 billion) asset buying
plan announced only a month ago if the economy worsens.

Some analysts say the BOJ may have to relax its policy again
before the end of the year to counter the effect the fresh supply
of dollars may have on the yen, but Shirakawa stressed this was
not a contest about who pumps more money into the economy.

“I do not see Japan and the United States as in a monetary
easing competition,” Shirakawa told a news conference.

“The degree of monetary easing cannot be measured simply by
the amount of assets central banks purchase,” he said, adding
that the success of policy easing should be measured how
effective it was in bringing down borrowing costs.

The BOJ is the third major central bank to hold fire after
the Fed’s Nov. 3 move to pump more money into the struggling U.S.
economy by buying government bonds.

The scope of the plan broadly matched market expectations,
sparing Japan a dollar sell-off and a sharp yen spike that could
have forced the BOJ’s hand.

That allowed the BOJ to focus on rolling out the asset buying
plan, which starts early next week with government bond
purchases. The central bank will also buy real estate investment
trusts (REITs) and exchange-traded funds (ETFs) linked to Tokyo
stock indexes.

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For a graphic on Fed, BOJ balance sheets:

http://link.reuters.com/ved62q

For a Factbox on asset buying plan: [ID:nTOE6A403T]

For PDF report on Fed decision: http://r.reuters.com/cyh73q

For more stories on the Japanese economy: [ID:nECONJP]

For analysis on BOJ and Japan REITs: [ID:nTOE69H05W]

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Both the European Central Bank and the Bank of England kept
their policies unchanged on Thursday, seemingly satisfied that
the euro zone and Britain did not need as potent medicine as
prescribed by the Fed for the U.S. economy.

As expected, the BOJ also unanimously voted to keep its rates
effectively at zero and maintained the size of the asset buying
plan. Shirakawa warned, however, that Japan’s moderate economic
recovery was stalling as growth in exports and output paused,
suggesting that the BOJ was ready to loosen credit if necessary.

“What has been announced is not enough compared to the U.S.
central bank’s expansion of easing steps,” said Susumu Kato,
chief economist at Credit Agricole in Tokyo.

“The BOJ needs to further expand its easing measures to beat
deflation and prevent the yen from appreciating further. It is
expected to do so in the next few months.”

The planned BOJ injection of little more than $60 billion
pales in comparison with the Fed’s plan, even given that the U.S.
economy is nearly three times as big as Japan’s.

UNCONVENTIONAL BUYS

In fact, by highlighting that contrast in size, Economics
Minister Banri Kaieda suggested that Japan’s central bank may
face calls in the future for an expanded scheme. [ID:nTOE6A402D]

The BOJ last eased its policy early in October by setting a
new interest rate target in a 0-0.1 percent range, pledging to
keep rates effectively at zero until the end of deflation was in
sight, and by announcing the asset buying plan.

The size of the asset buying pool now effectively serves as
the gauge of BOJ’s monetary easing. By buying assets directly
from the market, the central bank hopes the scheme will be more
effective than its 2001-2006 quantitative easing campaign that
targeted the amount of deposits commercial banks held at the BOJ.

The BOJ says its current scheme aims to reduce risk premiums
and encourage private investment by targeting a broader range of
assets than the Fed buys, including less conventional, riskier
instruments.
($1=80.72 Yen)
(Additional reporting by Rie Ishiguro; Editing by Tomasz
Janowski)

WRAPUP 2-BOJ holds fire after Fed, says further easing an option