BOJ seen keeping rates near zero: Analysts

BOJ seen keeping rates near zero: Analysts

TOKYO (Bloomberg): Bank of Japan policymakers will probably
keep interest rates near zero when they meet Monday, because the
economy is growing slowly and there is no sign of inflation,
analysts said.

The central bank's quarterly Tankan business survey last week
showed major companies plan to increase spending on new factories
and equipment this fiscal year, boosting growth prospects. Those
upbeat plans aren't shared by smaller companies, and managers
want to shed staff to cut costs.

"The Tankan shows the economy is taking off, but with only one
engine working," said Yasunari Ueno, chief market economist at
Fuji Securities Ltd. "A surge in capital investment hasn't spread
across the board, and we can see no signs toward better consumer
spending." Ueno expects the BOJ to keep rates near zero until at
least the middle of next year.

Consumer spending, which accounts for about 60 percent of the
economy, won't turn around until the jobless rates stops rising,
analysts said. The unemployment rate rose to a record 4.9 percent
in February and could have topped 5 percent in March, government
officials said.

The Bank of Japan's policy meeting heads the list of the main
economic events in Asia this week, including the release of Hong
Kong's February retail sales report on Friday. Koreans go to the
polls Thursday to elect a new parliament.

The Tankan survey, which polled some 9,200 managers on their
companies' plans, was closely watched by investors and analysts
for clues on when the central bank may ditch its zero-rate
policy, which Governor Masaru Hayami has said is "abnormal."

"The Tankan gave no reasons to back speculation that the BOJ
will cancel its zero-rate policy soon," said Noboru Kawai, an
economic strategist at Morgan Stanley Dean Witter & Co.

The BOJ has kept its target for the interbank overnight loan
rate, its equivalent of the U.S. Federal Reserve's federal funds
rate, at between 0.02 percent and 0.03 percent since March 1999.

Some investors expect the central bank may raise rates as soon
as September or October, citing an improvement in capital
investment. Hayami last week indicated he's not ready to change
tack yet, saying consumer spending must improve before rates can
go up.

"Hayami's made it clear that a recovery in consumer spending
is crucial in judging when to cancel the zero-rate policy, though
there is no doubt business investment is leading the current
growth,'' said Masaaki Kanno, chief economist at J.P. Morgan
Securities (Asia) Ltd. He expects the central bank will raise
rates in the fourth quarter of the year, when there'll be a clear
recovery in spending.