BOJ holds fire despite soft GDP, focus on Kuroda's views on risks

The Bank of Japan maintained its expansionary monetary policy on Tuesday and reiterated its upbeat view on the economy, unfazed by recent signs of slower growth and suggesting that any additional stimulus will be some time away.

The widely expected decision triggered a brief rebound in the yen as some investors unwound positions after betting that Monday's soft GDP data might prompt the central bank to act.

Markets are on the lookout for clues from Governor Haruhiko Kuroda at his post-meeting news conference on whether signs of weakening personal consumption will make the BOJ ease policy further.

As widely expected, the BOJ maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen.

The central bank stuck to its assessment that Japan is recovering moderately, a sign it remains confident the world's third-largest economy can weather the pain from a sales tax increase in April.

"The BOJ already expects the economy to contract immediately after the sales tax hike, so this cannot be the basis for additional easing," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo.

The central bank also extended special loan facilities, cobbled together between 2010 and 2012 as a way to drive funds through the banking sector to borrowers, by one year beyond their current expiry date in March.

It will double the size of funds available to financial institutions through the various loan facilities in the hope they would boost lending instead of sitting on the pile of cash.

BULLISH TONE INTACT?

Monday's weaker-than-expected fourth-quarter GDP has dashed hopes that a rush in household spending ahead of the April tax hike would cushion the pain from sluggish export growth.

While the BOJ is in no mood to act immediately, market pressure for further stimulus may heighten in coming months if there is more evidence that personal consumption is losing momentum, some analysts say.

Markets are on focused on whether Kuroda will stick to his view, offered last month, that no further easing was needed now with prices rising steadily and overseas economies recovering.

The BOJ has stood pat since launching an intense burst of stimulus last April, when it pledged to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in deflation for 15 years.

The soft fourth-quarter GDP data may strengthen the hand of pessimists on the nine-member board, who fret the sales tax hike may hurt household spending more than expected or that U.S. growth may not prove strong enough to make up for weak demand for Japanese goods in emerging Asian markets.

But other members, including Kuroda and his two deputy governors, have argued that temporary speed bumps in the economy won't be enough to justify further easing.

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