GO
Loading...

BOJ expected to ease policy, boost asset buying by at least Y10 trln

* Decision expected around 0330-0530 GMT

* BOJ may make stronger commitment to ultra-easy policy

* BOJ to cut forecasts, admit missing 1 pct price target

* Economics minister to attend BOJ meeting again

* Comments from governor's briefing seen after 0715 GMT

TOKYO, Oct 30 (Reuters) - The Bank of Japan is expected to ease monetary policy on Tuesday for the second straight month by increasing asset purchases, as slumping exports heighten pressure for bolder action to beat deflation and support an economy on the cusp of recession.

The move will come as the central bank is set to cut its growth forecasts and push back the timing for achieving its 1 percent inflation target in a twice-yearly report, with the world's third-largest economy struggling to sustain momentum in the face of global headwinds and cooling demand at home.

The most probable option for the central bank would be an increase in its asset buying and lending programme by at least 10 trillion yen ($126 billion).

Anything less is likely to disappoint markets and trigger an unwanted rise in the yen and falls in share prices, analysts say.

To maximize the market impact, the central bank may thus take additional steps such as making a stronger commitment to continue pumping cash until 1 percent inflation is achieved, say sources familiar with its thinking.

``It's almost certain the BOJ's consumer price forecast for fiscal 2014 will undershoot its 1 percent inflation goal,'' said Masaaki Kanno, chief economist at JPMorgan Securities in Tokyo.

``An easing equal to the size of September's will disappoint markets, pushing up the yen and hurting share prices,'' he said.

Any expansion in the 80-trillion-yen programme would be mostly for buying of government bonds, although there may also be a small increase in exchange-traded funds (ETF) and real estate investment trust (REIT) purchases, the sources say.

The BOJ set a 1 percent inflation target and expanded asset purchases in February, and followed up with another stimulus in April. It boosted asset purchases by 10 trillion yen again in September to ease the pain from the global slowdown.

But the government has piled renewed pressure for BOJ action, with a territorial row with China hitting business sentiment, and consumer prices falling for five months in a row in September.

Economics Minister Seiji Maehara, who attended a rate review earlier this month to make a direct call for easing, said he plans to participate again on Tuesday.

Since 2003, the BOJ has never eased policy for two months in a row, usually opting instead to spend several months weighing the impact of its action on the economy before expanding stimulus again.

Bank lending rose just 1 percent in the year to September even as the BOJ pumped more than 60 trillion yen so far via its asset buying and lending programme, as companies remain reluctant to borrow for investment due to the murky outlook.

The central bank sees room to boost purchases in Japan's 685 trillion yen market for government bonds. But some in the bank worry that trying to nudge down yields further could distort markets with five-year bonds now yielding less than 0.2 percent.

Japan's economy outperformed most Group of Seven peers in the first half of this year on spending for reconstruction from last year's earthquake. But weak exports and a strong yen have led some analysts to project Japan may fall back into recession.

Two government representatives can attend BOJ policy meetings. They cannot vote but can express their views and request a delay in vote on policy decisions. ($1 = 79.5600 Japanese yen)

(Additional reporting by Stanley White; Editing by Simon Cameron-Moore)