BANK OF JAPAN

The Bank of Japan hopes to avoid having to dig into its depleted policy arsenal next week, but may ease monetary policy if the yen soars toward an all-time high against the dollar and threatens a fragile economic recovery.

The yen rose toward a 15-year high against the dollar on Wednesday, sending benchmark government bond yields below 1 percent and adding pressure on Japanese policymakers to keep the fragile economic recovery on course.

Bank of Japan policy board member Hidetoshi Kamezaki said Japan's economic recovery lacks strength as export growth will likely moderate and government stimulus steps are set to expire.

Bank of Japan Deputy Governor Hirohide Yamaguchi said on Wednesday the central bank has not guided monetary policy with a specific currency rate level in mind, and will not do so.

The Bank of Japan revised up its economic forecast for the current fiscal year on Thursday but reiterated that it will keep monetary policy easy, with deflation likely to persist at least until early 2011. The central bank kept interest rates at 0.1 percent and held off on new policy initiatives as widely expected, in a unanimous vote.

The Bank of Japan revised up its economic forecast for the current fiscal year on Thursday but reiterated that it will keep monetary policy easy, with deflation likely to persist at least until early 2011. The central bank kept interest rates at 0.1 percent and held off on new policy initiatives as widely expected, in a unanimous vote.

The policy deadlock in Japan resulting from the ruling party's drubbing in upper house elections raises obvious concerns for Prime Minister Naoto Kan. But the Bank of Japan should be worried too.

New Bank of Japan board member Yoshihisa Morimoto said on Thursday that it is vital for the central bank to show its resolve to beat deflation, but he stopped short of elaborating on his views on monetary policy.

Japanese business confidence was at its best in two years in the three months to June and big firms revised up capital spending plans, a Bank of Japan survey showed, in a sign the export-driven economic recovery is taking hold.

The mood among Japanese businesses turned positive for the first time in two years and big firms revised up capital spending plans, a Bank of Japan survey showed, in a sign the export-driven economic recovery is taking hold.

* New finmin shares PM's view inflation above 1 pct needed * Says BOJ has taken appropriate, flexible steps on deflation * Won't guide currency rates in certain direction -Noda * Says Japan to report fiscal reform plans to Toronto G20

An interesting chart from the Bank of Japan's latest monthly economic report. Japanese capacity utilization is way down. Around 20% of manufacturing facilities are standing idle. This is an improvement from the beginning of 2009, when 35% of capacity was shut down. But a marked decrease from pre-financial-crisis levels, when there was almost no excess capacity to be found.

The Bank of Japan raised its outlook for the economy Friday, citing signs of sustained recovery in domestic demand, but also warned that Europe's debt debacle posed a risk to the global economy.

A Japanese ruling party panel called on the government and the Bank of Japan on Thursday to make utmost efforts to keep the yen at appropriate levels as part of efforts to pull the world's No.2 economy out of deflation.

The Bank of Japan loosened monetary policy on Wednesday in a split vote that suggested the central bank would struggle in the future to meet government demands for easier monetary conditions.

Trying to guess when the Bank of Japan will make its next policy move? For now, try watching the yen.

Asian stocks fell on Thursday as investors fretted over tighter monetary policy in China on the back of strong loan growth and quickening inflation, while the yen struggled amid signs that Japan's economy may need more support.

The Bank of Japan remains under steady government pressure to loosen monetary policy further, even as the central bank's ammunition to beat deflation dries up. While the government has not openly said what exactly it wants the BOJ to do, it is relying on it to act in the event of a sharp rise in the yen or in bond yields that could threaten a fragile economic recovery.

Japan's narrowest measure of consumer inflation matched a record annual fall in January in a sign weak demand will prolong deflation and may prompt the Bank of Japan to expand its supply of funds to the market by mid-year.

Bank of Japan Deputy Governor Hirohide Yamaguchi said the central bank was ready to act to beat deflation, leaving room for more monetary easing amid a steady drumbeat of government pressure for BOJ steps to support the economy.

Japan's Finance Minister Naoto Kan reiterated his desire to target inflation, setting up a clash with the Bank of Japan over how best to pull the country out of deflation.