The governor of the Bank of Japan said the bank will act decisively in the event of renewed financial market turmoil, his strongest hint yet at fresh support for the economy that analysts say could involve buying more government bonds or a return to quantitative easing.
Japanese Prime Minister Yukio Hatoyama and Bank of Japan Governor Masaaki Shirakawa will meet next week, two sources with direct knowledge of the matter said, as a surging yen adds to debate over central bank policy.
Japanese cabinet ministers piled yet more pressure on the Bank of Japan on Tuesday to respond to deflation, with one saying the central bank was asleep at the wheel.
The Bank of Japan will keep interest rates near zero even as downside risks to the economy subside, the central bank governor said, reassuring investors its withdrawal from credit markets does not signal an exit from its ultra-easy monetary policy.
The Bank of Japan is leaning towards scrapping some corporate finance support programmes in December, sources with knowledge of the bank's thinking said, rebuffing government pressure to delay an exit from credit markets.
The Bank of Japan kept markets guessing on the future of its support for corporate finance, avoiding any reference to the issue in its latest policy review as analysts warily eyed government pressure to keep the measures in place.
The Bank of Japan may decide to start withdrawing support for corporate finance on Wednesday, despite government criticism, at a policy meeting that may set the tone for its relationship with the new government.
Japan's government put pressure on the central bank on Tuesday to avoid ending its emergency funding for companies too soon, with the finance minister saying the economy had yet to regain balance.
Group of Seven financial ministers and central bank governors will likely discuss the economic and financial developments that are behind recent currency moves at their meeting this weekend, Bank of Japan Governor Masaaki Shirakawa said on Friday.
The Bank of Japan said it was slightly more optimistic about economic and financial conditions on Thursday, likely bringing it a step closer toward phasing out some of its measures to support corporate funding.
Bank of Japan Governor Masaaki Shirakawa said on Thursday a stronger yen would push down prices in the near term but might support the economy in the longer run. Japan must look at the overall economy in gauging the impact of the yen's strengthening, Shirakawa told a news conference.
The Bank of Japan will likely face political pressure regardless of whether the ruling coalition or the main opposition wins the upcoming election, with both parties seen leaning on monetary policy to support an economic recovery.
Big Japanese manufacturers have grown increasingly bleak about business conditions in the last three months, suggesting a key central bank survey due next week could show the corporate mood is at its worst in about 34 years.
The Bank of Japan negatively revised its economic outlook Wednesday, saying the economy was slowing.
The Democratic Party of Japan (DPJ) decided Tuesday to accept Masaaki Shirakawa as Bank of Japan(BOJ) chief, ending a stalemate that has left the world's second largest economy without a permanent central in the midst of a global credit crisis.
As the Group of Seven (G7) finance chiefs descends on Washington D.C. next week, the Japanese government plans to propose Masaaki Shirakawa as the head of the Bank of Japan in a rush to ensure attendance at the key international meeting.
Japanese Prime Minister Yasuo Fukuda has nominated former vice finance minister Koji Tanami to head up the Bank of Japan early Tuesday morning.
Big Japanese firms remained upbeat about business conditions in June, a Bank of Japan survey showed on Monday, underscoring the view that the central bank may raise rates as early as August but will stick to a gradual pace of credit tightening.
Euroyen futures gave up early gains on Monday after the Bank of Japan's June tankan survey generally matched forecasts, reinforcing market views that the central bank may raise interest rates as early as August.
