UPDATE 2-BOJ eases policy as recession risk delays deflation end
* BOJ to cut forecasts, admit missing 1 pct price target
* Comments from governor's briefing seen after 0715 GMT
* Industrial output falls 4.1 pct in Sept m/m vs f'cast -3.3
(Recasts with policy decision) TOKYO, Oct 30 (Reuters) - The Bank of Japan eased monetary policy on Tuesday for the second straight month by increasing asset purchases, as slumping exports and factory output heighten pressure for bolder action to support an economy on the cusp of recession. The move was widely expected by markets as the central bank has faced renewed calls from politicians for further steps to achieve its 1 percent inflation target. The central bank expanded its asset-buying and lending programme by 11 trillion yen ($137.82 billion) to 91 trillion yen with 10 trillion of the increase split evenly between longer-term government bonds and treasury bills. One trillion was earmarked for an increase in purchases of riskier assets, half of it assigned to exchange-traded funds (ETF). The yen jumped and 10-year bonds erased earlier gains after the stimulus came just a notch above the 10 trillion yen figure priced in by markets. The BOJ also said it would create a new loan programme to supply banks with cheap long-term funds without limiting the amount of cash made available. In a rare gesture, the government and the BOJ issued a joint statement pledging their combined efforts to overcome deflation and strengthening a commitment to the inflation goal. ``The BOJ will pursue powerful monetary easing aiming for 1 pct inflation and until that goal comes into sight,'' the statement said. The central bank is set to cut its economic and price forecasts in a semi-annual outlook report due out on Tuesday, and push back the timing for achieving its 1 percent inflation target, having earlier aimed for sometime in the fiscal year ending March, 2015.
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 on the BOJ, with consumer prices falling for five months in a row in September and diminishing prospects for beating deflation any time soon. The market reaction suggested investors looked past the BOJ's pledges, focusing instead on the size of the immediate stimulus. ``The contents of the BOJ's easing were within the expectations and the market may have been slightly disappointed, which led the yen rises,'' said Koichi Haji, chief economist at NLI Research Institute in Tokyo. ``The BOJ will likely continue to face monetary easing pressure.'' Data on Tuesday showed industrial production fell in September at the fastest pace since last year's earthquake and job availability dropped for the first time in more than three years, heightening the case for further BOJ action. 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. The unusual move this time underscores the political heat the central bank was under amid growing signs of weakness in the economy. Economics Minister Seiji Maehara, a vocal advocate of aggressive monetary easing, attended the BOJ's rate review for the second straight time to make a direct call for action. But many economists say the BOJ's move will have little direct effect of stimulating the economy with markets already awash with extra cash. 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 votes on policy decisions. ($1 = 79.5600 Japanese yen)
(Additional reporting by Stanley White, Kaori Kaneko and Tetsushi Kajimoto; Editing by Simon Cameron-Moore)