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.