TOKYO, 13 September 2003 — The Bank of Japan voted yesterday to leave its monetary policy unchanged following recent evidence of an economic upturn as the government upgraded its own outlook for a second successive month.
The BoJ said at the end of a regular two-day policy board meeting it would conduct money market operations to maintain an outstanding balance of current accounts held at the bank of some 27-30 trillion yen ($230.8 billion-$256.4 billion).
“Should there be a risk of financial market instability, such as a surge in liquidity demand, the bank will provide more liquidity irrespective of the above target,” it added.
The decision had been widely anticipated in the light of Japan’s positive recent economic indicators, and Masatoshi Sato, senior strategist at Mizuho Investors Securities, said monetary policy was unlikely to change in the near future. “The Bank of Japan is likely to maintain its current stance for the time being following a series of signs of economic recovery. Attention now is being paid to how the BoJ sees the recent gains in long term interest rates,” he said.
The BoJ said in a separate statement that BoJ Governor Toshihiko Fukui had instructed bank staff to study the issue of extending the maturities of government securities it buys in repurchase operations.
In its monthly economic assessment in August, the central bank had already presented a scenario of domestic recovery thanks to improving growth rates overseas, even though it characterized economic activity as “virtually flat” at the time.
That was borne out to some extent by the government’s revision Wednesday of its gross domestic product figures for the June quarter, showing the world’s second largest economy grew a revised 1.0 percent from the previous quarter, the highest growth rate since the end of 2000.
On an annualized basis, GDP was revised up to 3.9 percent from the previous estimate of 2.3 percent, outstripping the revised 3.1 percent growth reported in the United States for the same quarter.
The government also said Wednesday that Japan’s current account surplus in July rose 34.6 percent from a year earlier, helped by strong exports.
For August, the government had upgraded its assessment of the economy for the first time in five months as a recovery in industrial output, imports and employment offset fears over a slump in exports.
The government updated its assessment again in the September report released later yesterday to note that the economy is “showing movements toward incipient recovery.
“Japan’s economic growth was stronger than that in any other developed countries for the last three quarters,” Economics and Financial Services Minister Heizo Takenaka told a news conference. “I recognize that we are at the stage where the first shoots of structural reform efforts are emerging.”
The decision to leave monetary policy alone had no impact on foreign exchange trading, dealers said. “As (BoJ Governor) Fukui has said the BoJ will maintain the current policy, investors believe the BoJ will make no change for a while,” said Masato Imai, dealer at UFJ Holdings.
The dollar traded around 117.05-07 yen for most of the day in Tokyo, before and after the announcement, virtually unchanged from 117.07 yen in New York Thursday.
The BoJ last eased monetary policy at its May 20 meeting by raising its current account balance target, citing flat economic activity coupled with growing uncertainty arising from the outbreak of Severe Acute Respiratory Syndrome (SARS), and stock and foreign exchange market instability.