The FIGHT to hold your fire, look through earthquake recovery

Cherry Blossom bloom in the presence of the Bank of Japan (BOJ) headquarters in Tokyo, 7. April 2011.

Credit: Reuters/Yuriko NakaoBy leika kihara

TOKYO | Wed Apr 25, 2011 12: 41 am EDT

It is expected, Tokyo (Reuters)-the Bank of Japan to reduce its economic forecasts for the current fiscal year due to the devastating earthquake last month, but the revival of the project, in the autumn, the Annunciation, in order to stem the monetary policy so as to keep the economy at least for now.

The Central Bank will nudge up their forecast consumer prices in their report outlook twice a year to the recent increases in the cost of commodities, but stress that the supply driven inflation did not shake its commitment to the ultra-easy politics.

Nine members of the Board is set up to defer on further steps towards monetary easing and announce the details of the new loan scheme aimed at quake hit banks, which was unveiled on the examination of the previous rate.

Here are the possible outcomes from the meeting:

POLICY ON HOLD, TO KEEP THE RECOVERY FORECAST OPTION: HIGHLY LIKELY

Reflects the anticipated slump in factory output from supply constraints from the earthquake, Nemanipulovat has decided to reduce their economic forecasts for the fiscal year 2011/12, which started on 1. April, from its January projection of growth of 1.6 percent.

But the FIGHT to see little need to release the policy as soon as it is expected that the economy to pick up from the autumn, when the disruption of the supply chain and the damage to the power output from the lack of release.

Exports sank and entrepreneurial spirits deteriorated sharply since the earthquake, while a record decline in production is likely to be announced in March.

STRUGGLE undoubtedly policy after 11 days. March of the disaster, however, and feels that already preemptively responded to the damage to growth.

In the half-yearly report has decided to Nemanipulovat to hold the view that the uncertainty regarding the impact of an earthquake is high, the Japanese economy recovers the modest recovery next fiscal year.

The Administrative Council of the central economic forecasts for the current fiscal year is likely to be reduced to somewhere between 0.5% and 1%, roughly in line with the projection of 0,7% of analysts polled by Reuters earlier this month.

The FIGHT is likely to be a forecast recovery of growth in the following year, in excess of its January projection of 2.0 percent.

The REACTION on the market: Bonds and the yen may fall short if it is decided Nemanipulovat cuts its forecast of growth much more than anticipated, fuelling expectations of a near-term monetary easing.

STRENGTHEN THE POLITICAL COMMITMENT OF THE POSSIBILITY OF EASILY MIGHT BE:

The FIGHT has vowed to keep interest rates almost to zero, until Japan achieves long-term price stability, which the Council "roughly" defines as consumer inflation in% 1.

The Central Bank will consider fine-tuning the definition to specify Central 1 percent consumer inflation forecast, the members of the Administrative Council, signals, that would be more or less objective should be achieved to the stimulus must be unwound.

It can also emphasize-the report half-yearly or at a press conference after the meeting, Governor Masaaki Shirakawa – that the unwinding of its ultra-loose policy would be considered only in the event that price increases are driven by economic growth and not just a spike in the cost of food and fuel.

In this way, the Nemanipulovat decided to try to dispel speculation that it might be tempting to reverse its ultra-easy policy, if the fuel and food costs push consumer prices towards the mark 1 percent.

The recent growth in commodity prices is likely to revise his forecast of the STRUGGLE for basic consumer inflation this fiscal year to approximately 0.5 percent from 0.3 per cent. It may also increase its consumer inflation 0.6 percent forecast for the following year by a few percentage points.

The REACTION on the market: Markets may move as many expect, that Nemanipulovat in time for its decided ultra-easy policy shortly.

THE POSSIBILITY OF EASY POLICY: HIGHLY UNLIKELY

The FIGHT ready to loosen policy further, if the damage from the earthquake and tsunami, which caused a protracted crisis, nuclear safety, and is likely to persist through the summer power crunch, threaten the economy to return to a moderate recovery.

But the Central Bank, there is little that monetary policy can deliver up to restrictions, rather than weak demand in that they are the main silencer for growth – as is the case now.

Another trigger for monetary loosening, therefore new evidence that the supply is detrimental to the domestic demand for economy Undershoot decided to Nemanipulovat predictions.

The FIGHT with the hopes that it will examine the impact of the quake on the economy in April and may, so it can become a pat on the politics, as long as the data for these months was released in July.

In the meantime, the fight will focus on measures aimed at encouraging banks to lend more to companies hit by the earthquake.

Shall notify the details of the scheme of 1 trillion yen (12 billion dollars) in loans for the banks in the area of the earthquake hit, including the programme, which will be either six or twelve months.

The FIGHT will focus on the kick-off loan program in May and will be ready to expand in the coming months, the demand for credits if higher than expected, sources with the Central Bank's thinking, he said.

The REACTION on the market: the surprise move would push down yields on bonds and the yen.

(Japanese-only $ 1 = 81.845)

(Edit Edmund Klamann)

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