BOJ keeps rates near zero again
By Tomoko A. Hosaka |
September 8, 2010, Wednesday
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Print Edition
Print Edition
JAPAN'S central bank voted to keep interest rates near zero, holding off on further measures to tackle a strong yen that is undermining the country's fragile economic recovery.
In an unanimous decision, the Bank of Japan's nine-member policy board decided yesterday to maintain its key interest rate at 0.1 percent, as widely expected. The central bank has not changed the overnight call rate since December 2008.
The BOJ kept its assessment of the economy, saying it shows "further signs of a moderate recovery" but admitted growing headwinds.
"Against the backdrop of increased uncertainty about the future, especially for the US economy, and associated instability in the foreign exchange and stock markets, attention should be paid to downside risks to Japan's economy," it said in a statement.
The central bank's latest decision to do nothing follows an emergency meeting last week, when it expanded a low-interest credit program to help contain the impact of the strong yen.
The BOJ has been under increasing political pressure to act on the currency. Japan's export-driven economy is facing an increasingly uncertain outlook while the government is hamstrung by massive debt. Sustained strength in the yen is toxic to vital exporters such as Toyota Motor Corp and Sony Corp, eroding their international profits and making their goods less competitive abroad.
The move last week, however, generally underwhelmed markets and analysts, who criticized the loan expansion as too modest.
In its defense, the BOJ said it has been "striving to pursue powerful monetary easing" and pledged to maintain an extremely easy financial environment.
"The bank will carefully examine the outlook for economic activity and prices, and, if judged necessary, take policy actions in a timely and appropriate manner," it said, reiterating its Governor Masaaki Shirakawa's comments last week.
The direction of Japan's economy may also hinge on a key leadership election in the ruling party next Tuesday.
Three months after taking office, Prime Minister Naoto Kan faces a fierce challenge from veteran lawmaker Ichiro Ozawa for the Democratic Party presidency. Because the Democrats control the more powerful lower house, the winner is virtually guaranteed to be prime minister.
Kan has proposed a 920 billion yen (US$10.9 billion) jobs-focused stimulus package but has not called for currency intervention. Ozawa has said he would intervene in foreign exchange markets.
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