The Bank of Japan (BOJ) refrained from pumping extra cash into the world's second-biggest economy for a third month amid evidence the nation's export-led recovery is spreading.

Governor Toshihiko Fukui and his eight policy board colleagues decided unanimously to leave the upper limit of the target for reserves available to lenders at 35 trillion yen (US$321 billion) and keep interest rates at almost zero at a one-day meeting, the bank said in Tokyo.

Japan grew at its fastest pace in more than 13 years in the final three months of 2003, fuelled by higher business spending and stronger overseas sales at companies including Sharp Corp.

Increasing confidence at home has spurred consumer spending, which makes up more than half of the economy. "The bottom line for the Bank of Japan is to keep monetary policy unchanged," Seiji Shiraishi, chief market economist at Daiwa Securities SMBC Co in Tokyo, said before the meeting.

"If the economy continues to recover at the current pace, policy board members may predict a rise in consumer prices in their October economic outlook."

Imports rose 6.5 per cent in March, their biggest gain since October 2000, suggesting rising consumer spending will help sustain growth.

Consumer confidence was the highest it has been since December 2000, the government said on Tuesday.

In its last outlook, announced in October, the central bank's policy board members forecast prices would fall for a seventh fiscal year.

The policy board in January unexpectedly raised the upper limit of its reserve target its primary policy tool with rates near zero by 3 trillion yen (US$28.03 billion) to help slow yen gains that threatened to harm exporters by making their products more expensive abroad.

Overseas sales accounted for a quarter of the 6.4 per cent annual pace of economic growth in the three months to December 31, which was the fastest expansion since 1991.

Japan sold a record 32.9 trillion yen (US$307.47 billion) in the last fiscal year to try to curb yen gains. The currency, nonetheless, strengthened 13 per cent against the US dollar during the period.

The bank lowered interest rates to almost zero in March 2001 and pledged to keep borrowing costs there until nationwide core consumer prices, excluding fresh food, show stable increases. Those prices were unchanged in February from a year earlier, suggesting deflation may be easing. Monthly core consumer prices have risen once since April 1998.

The benchmark 1.5 per cent bond due in March 2014 fell 0.086 to 99.785, as of 1:54 pm yesterday in Tokyo, according to Japan Bond Trading Co. Its yield rose one basis point to 1.525 per cent after falling to 1.485 per cent.

Fukui and his colleagues may move to ease policy in coming months if the yen continues to gain against the dollar, economists say.

"Should the government sell yen, the bank may raise its reserves to accommodate that," said Ryutaro Kono, chief economist at BNP Paribas Securities in Tokyo.

Nationwide core consumer prices were probably unchanged for the second month in March, according to the median forecast of 32 economists surveyed by Bloomberg.

Prices in Tokyo for April probably fell 0.2 per cent, according to the median forecast of 32 economists surveyed.

The government's Statistics Bureau will release nationwide consumer prices for March and Tokyo prices for April on Friday at 8:30 am today in Tokyo.

Fukui said he told Group of Seven (G-7) finance ministers and central bankers at the weekend that the BOJ is committed to its present policy to overcome deflation.

"I explained at the G-7 meeting that it's not easy to reach the point where we meet our conditions to end our current policy, which requires consumer prices to become stable at or above zero as a trend," he said on Saturday at a press conference in Washington. The G-7 comprises Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

(China Daily 04/29/2004 page11)