Japan Bank May End Easy Monetary Policy Monday October 31, 3:22 am ET Japan's Central Bank Suggests It May End Easy Monetary Policy Next Fiscal Year
TOKYO (AP) -- Japan's central bank said Monday that it may end its easy monetary policy next fiscal year, which begins in April, as price drops abate and the economy continues to rebound.
Speculation has been growing that the bank may shift gears in its policy soon because of multiple signs of sustainable economic recovery after nearly 15 years of little or no growth.
"The possibility of a departure from the present monetary policy framework is likely to increase over the course of fiscal 2006," board members said in a monthly report.
But it also said it was not in any hurry to change its monetary policy.
Earlier in the day, the Bank of Japan kept its monetary policy unchanged, leaving its target range for liquidity, which it measures through commercial banks' account balances at the central bank, in a range of 30 trillion yen ($259 billion) to 35 trillion yen ($303 billion). It also kept its monthly purchases of government bonds at 1.2 trillion yen ($10 billion).
The move, which was in line with market expectations, came at a policy board meeting.
Many economists believe that the central bank's first step in tightening policy will be shrinking the liquidity supply, which would give banks less cash to lend and making borrowing more expensive.
The bank has kept interest rates virtually at zero for about four years to encourage an economic rebound in Japan. It has also maintained ample extra cash in the financial system, saying it won't change its policies until deflation has ended.
Deflation, in which prices continue to drop consistently, deadening economic activity by bringing down wages and profits, is usually rare in developed economies such as Japan.
The bank's board upgraded its forecasts for core consumer prices and economic growth next fiscal year. Core CPI for next fiscal year was projected to rise between a 0.4 percent and 0.6 percent. For the current fiscal year, their core forecast range was 0.0 percent and 0.1 percent.
The bank's board gave its outlook for GDP growth at 1.6 percent to 2.2 percent for fiscal 2006, and 2.2 percent to 2.5 percent for this fiscal year.
The Bank of Japan has said it will keep its policy until on-year changes in the core consumer price index are stable above zero, indicating that deflation has been safely beaten.
The Bank of Japan also noted that the economy's performance is stronger than it had expected, although it cautioned that higher oil prices and a possible slowdown in global markets remain risks for Japan.
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