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BOJ set to keep QE taps open despite hinting at wind-down

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BOJ set to keep QE taps open despite hinting at wind-down

The Bank of Japan is seen keeping faith with its massive stimulus program at its monetary meeting ending Dec. 21, despite symptoms of economic growth and concerns from some central bank members about the adverse effects of easy policy, Reuters reported.

The world's third-largest economy saw a 16.2% annual surge in its exports in November, up from a 14% gain the month before, while the optimism of Japan's big manufacturers also climbed in the October-December period. The economy expanded by 2.5% on an annualized basis in the third quarter, but the picture was clouded by a murky outlook on inflation.

"Economic and price conditions haven't changed much in the past few months, so the BOJ probably sees no need to change policy now," said a source familiar with the bank's thinking, according to Reuters. Two other sources reportedly echoed that view to the newswire.

BOJ Governor Haruhiko Kuroda last month hinted at a stimulus wind-down, citing swelling costs, but later reiterated the central bank's resolve to stay put on the massive program in order to boost chronically low inflation.

Other bank officials, including Deputy Governor Hiroshi Nakaso, have made reference to the risks associated with running prolonged QE, but some members of the monetary policy committee are still arguing for an increase in stimulus to propel inflation toward the bank's 2% target faster.

The minutes of the BOJ's Oct. 30-Oct. 31 monetary policy meeting showed concerns over bank profits, bond market liquidity, lofty asset prices and the growth of exchange-traded funds were all raised by some members.

Despite this, the central bank is widely expected to leave its short-term interest rate target unchanged at negative 0.1% and to keep its 10-year bond yields at about zero percent, as core inflation came in at just 0.8% in October, Reuters said.

The board may, however, discuss whether it should consider raising its yield targets or slow down purchases of ETFs in 2018, the newswire added, citing analysts.

Any move to tighten policy by the BOJ could have a material impact on global markets, since Japanese investors have poured money into higher-yielding foreign assets in the last few years as returns on domestic investments have been choked off.

Japanese investors held some ¥453 trillion of foreign portfolio investments as of May, according to Ministry of Finance data — ¥282 trillion in bonds and ¥171 trillion in stocks and funds.

As of Dec. 15, US$1 was equivalent to ¥112.72.