Bank of Japan holds key interest rate unchanged, sees positive signs for economy
- Source: Xinhua
- [19:04 October 14 2009]
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Following a two-day policy meeting, which ended on Wednesday, the Bank of Japan (BOJ) announced that it would maintain the uncollateralized overnight call rate at 0.1 percent.
The widely anticipated decision was made public at a press conference held earlier Wednesday and the decision not to change the interest rate was unanimous amongst BOJ board members.
The central bank has kept its key rate unchanged at near zero since December 2008 when it cut the rate from 0.3 percent in an attempt to accelerate an economic recovery.
At the end of the two-day policy meeting no decisions were made by the board on the future of emergency credit measures, which were implemented earlier this year.
Board members said they expect Japan's economy to gradually recover but highlighted major uncertainties in overseas economies and financial markets that could derail growth and further depress prices.
"Japan's economy has started to pick up," board members said earlier in a joint statement to the press.
"Public investment has been increasing, and exports and production have also been rising against a backdrop of progress in inventory adjustments both at home and abroad as well as a recovery in overseas economies, especially emerging economies."
Although there are clear signs of a better-than-projected recovery in emerging economies, the BOJ added in a post meeting policy statement that "risks to the economy remain on the downside, stemming from future developments in the global financial and economic situation, and from changes in firms' medium-to long term growth expectations."
With lending becoming easier for companies, analysts had expected board members to end entirely or drastically scale down key programs, including the bank's purchases of commercial paper and corporate bonds, but following the policy meeting it looks as though such measures have been placed on the back burner.
The BOJ said there is a distinct possibility that inflation would fall more than previously expected, provided the downside risks to the economy materialize, or medium to long-term inflation expectations decline.
Japan's key consumer price index, which excludes volatile fresh food prices, fell by a record 2.4 percent in August from a year earlier. Core CPI has fallen for six straight months and, in fact, points to another bout of prolonged deflation.
Public investment has increased however and exports and production have risen amid progress in inventory adjustments and recoveries shown in key overseas economies. As a result, business sentiment is showing improvement and the BOJ noted increasing signs of improvement in the financial environment.
It was also noted in the BOJ policy meeting that the decline in business-fixed investment had also moderated, whilst private consumption remained generally weak amid the severe unemployment and low-income situation, punctuated by a report released earlier in the day that showed that Japanese corporate goods prices dropped for the ninth straight month in September and the annual decline in domestic corporate goods prices slowed to 7.9 percent in September from 8.5 percent in August.
Japan's central bank did reiterate, however, that it would exert its utmost efforts to facilitate the return of Japan's economy to a sustainable growth path with price stability.
