Central banks from Singapore to the euro zone have eased policy, but Bank of Japan to wait and see

Haruhiko Kuroda, Governor of the Bank of Japan, speaking at the World Economic Forum in Davos on Jan 24, 2015. The Bank of Japan has put monetary policy on hold and found backing for its wait-and-see stance. -- PHOTO: REUTERS 
Haruhiko Kuroda, Governor of the Bank of Japan, speaking at the World Economic Forum in Davos on Jan 24, 2015. The Bank of Japan has put monetary policy on hold and found backing for its wait-and-see stance. -- PHOTO: REUTERS 

TOKYO (REUTERS) - The Bank of Japan has put monetary policy on hold and found backing for its wait-and-see stance from advisers to Prime Minister Shinzo Abe, who worry more easing could send the yen to damagingly low levels, according to officials in the administration and central bank.

This newfound caution from some of the same Abe advisers who urged the BOJ to launch its massive stimulus in 2013, means Japan is set to be an outlier at a time when central banks from Canada to the euro zone to Singapore have shocked markets by easing policy in recent days.

Concerns about the yen, along with a belief among central bank officials - including Governor Haruhiko Kuroda - that coming wage increases will support higher prices, suggest the BOJ could hold policy steady until October, months after many economists expect it to be eased.

"The environment under which the BOJ is working to hit 2 per cent inflation has changed dramatically. We need to take that into account," Economics Minister Akira Amari said on Tuesday.

The BOJ stunned markets by expanding its stimulus in October last year to try to prevent slumping oil prices and a subsequent slowdown in consumer price growth, from causing the central bank to miss its 2 per cent inflation target.

But since then, oil prices have fallen by another 50 per cent. Core inflation fell for a fifth month to hit 0.5 per cent in December, data showed on Friday, stoking expectations the BOJ could face pressure to ease again.

But Mr Kozo Yamamoto, a leading expert on monetary policy in Mr Abe's ruling Liberal Democratic Party, said last week that he expected the BOJ could even hold policy steady for the remainder of this year in the absence of some external shock.

"What more can the BOJ do? I think the central bank can hold off on action and take a wait-and-see stance for the time being," Mr Yamamoto told Reuters in an interview last week.

The BOJ's stimulus, dubbed "quantitative and qualitative easing", or QQE, has been a mainstay of Abe's pro-growth policies known as Abenomics, an attempt to push Japan's economy out of the slow growth and deflation that characterized the 15 years before Abe took office.

Privately, government officials in the Abe administration said the stand-back and wait comments by Amari and Yamamoto reflect a caution that any further BOJ action could drive the yen lower. "Further monetary easing is scary because if the yen weakens more, that could cause problems," one official said.

The US dollar has risen 9 per cent against the yen since early October and almost 30 per cent since Abe was elected in December 2012. The weak currency has been a boon to exporters like Toyota Motor but has hurt companies like discount carrier Skymark Airlines, which cited higher costs for its dollar-based aircraft leases as a reason for its bankruptcy filing this week.