BOJ shows gloomier outlook for Japan economy+

TOKYO, Oct. 28 Kyodo -
The Bank of Japan on Thursday downgraded its forecasts of the nation's economic
growth, adding to the evidence that it will take longer than earlier thought
for the economy to beat deflation.
BOJ Governor Masaaki Shirakawa said the central bank could expand its planned 5
trillion yen ($61.48 billion) experimental program to purchase various assets
held by financial institutions in an attempt to support business activities and
bolster the country's flagging economy.
Japan's real gross domestic product is expected to expand 2.1 percent year on
year in fiscal 2010, which ends in March, and 1.8 percent in fiscal 2011, the
BOJ said in its biannual report released after a policy meeting, in which the
bank decided to keep its key short-term interest rate steady at around zero to
0.1 percent in a widely expected move.
The growth forecasts compare with the projection in July that the real GDP
would expand 2.6 percent and 1.9 percent, respectively. The BOJ newly made a
projection of 2.1 percent growth for 2012.
Shirakawa cited the U.S. economic slowdown as being one of the main reasons for
the downgrading.
''The outlook for the U.S. economy has turned pessimistic from optimistic,''
Shirakawa said at a press conference. He also expressed concern about
stockpiling in the information technology sector.
The BOJ said it will convene its next Policy Board meeting on Nov. 4-5, instead
of the originally scheduled Nov. 15-16. The move fueled speculation that the
bank is mindful of possible additional monetary easing by the U.S. Federal
Reserve, which may come at its next meeting on Nov. 2-3 and could drive the yen
higher against the U.S. dollar.
Shirakawa denied such a view, saying the rescheduling was necessary for the BOJ
to ''implement the asset purchase program as soon as possible,'' even though
few analysts accept his comment at face value.
''The biggest immediate risk is that the yen may keep rising,'' said Masamichi
Adachi, senior economist at JPMorgan Securities Japan Co. ''If the Fed's
decision pushes the yen higher, then it becomes increasingly possible the
government intervenes in the market to stem its appreciation...there's a
reputation risk for the BOJ if it does nothing at such a crucial moment.''
The outlook report said the nation's core consumer price index, which excludes
fresh food prices, could fall 0.4 percent in fiscal 2010 and rise 0.1 percent
the following year, unchanged from earlier forecasts.
At the policy meeting, the BOJ also decided to purchase corporate debt with
relatively lower credit ratings from financial institutions under the planned 5
trillion yen asset purchase program outlined earlier this month and aimed at
helping companies raise necessary funds at a time of economic slowdown.
It set the minimum ratings for the purchases at triple B for corporate bonds
and a-2 for commercial paper, or short-term debt issued by companies. The
levels are lower than the ratings set last year when the BOJ temporarily
introduced similar programs amid the global financial turmoil.
The BOJ will establish the program as a temporary measure to purchase financial
assets ranging from government and corporate bonds to riskier exchange-traded
funds and real estate investment funds, in addition to its existing 30 trillion
yen lending operation that offers three- and six-month money against collateral
at interest rates as low as 0.1 percent.
The bank finalized some other details on the program, including plans to newly
purchase 1.5 trillion yen in Japanese government bonds and 2 trillion yen in
treasury discount bills, or short-term sovereign debt. It will also buy 500
billion yen worth of CP and corporate bonds, 450 billion yen in ETF and 50
billion yen in REIT.
Shirakawa, when asked whether the bank could increase the total amount of
purchases from 5 trillion yen if necessary, said, ''The program has yet to even
start. We're now preparing it.''
''We need to check favorable impacts as well as side effects of the program,''
he also said, but added, ''If we determine there are more favorable effects
while economic and price outlooks change a lot from our expectations, then
increasing the amount will become an important option.''
In its meeting Oct. 4 to 5, the bank's Policy Board decided to embark on
''comprehensive monetary easing,'' reinstating its zero interest rate policy to
bolster the faltering economy and pledging that the BOJ would maintain the
policy ''until it judges that price stability is in sight.''
The bank's current understanding of medium- to long-term price stability is a
year-on-year change in the core CPI that falls in ''a positive range of 2
percent or lower.''
==Kyodo