BOJ leaves rates above zero
By Tomoko A. Hosaka |
January 27, 2010, Wednesday
|
Print Edition
Print Edition
JAPAN'S central bank kept interest rates just above zero yesterday, pledging to fight deflation and preserve recovery in the world's second-biggest economy.
The Bank of Japan policy board voted unanimously to keep the overnight call rate target at 0.1 percent, as widely expected even amid a resurgent yen. The central bank has maintained the super-low interest rate since December 2008 when it was cut from 0.3 percent.
Helped by export demand from emerging economies, Japan's economy is improving, the central bank said. But it expects stagnant growth until the middle of next fiscal year starting April.
"Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," BOJ Governor Masaaki Shirakawa said.
The central bank yesterday narrowed its forecast for economic contraction and now projects gross domestic product to fall 2.5 percent this fiscal year through March. In October, it had forecast a 3.2 percent fall.
The board expects GDP to expand 1.3 percent next fiscal year, up from 1.2 percent it forecast in October.
On the deflation front, however, BOJ said prices will probably keep falling for another couple of years. It pledged to maintain an extremely easy monetary policy to help boost prices.
"The central bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," Shirakawa said.
Deflation can drag down an economy by lowering company profits, leading to wage cuts and postponed purchases by wary consumers. Japan is especially sensitive to the issue after experiencing the "Lost Decade" in the 1990s, when it was beset by extended price falls.
Japan's recovery also faces other headwinds, including a resurgent yen. The currency has gained about 3 percent against the dollar since the beginning of the year.
The Bank of Japan policy board voted unanimously to keep the overnight call rate target at 0.1 percent, as widely expected even amid a resurgent yen. The central bank has maintained the super-low interest rate since December 2008 when it was cut from 0.3 percent.
Helped by export demand from emerging economies, Japan's economy is improving, the central bank said. But it expects stagnant growth until the middle of next fiscal year starting April.
"Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," BOJ Governor Masaaki Shirakawa said.
The central bank yesterday narrowed its forecast for economic contraction and now projects gross domestic product to fall 2.5 percent this fiscal year through March. In October, it had forecast a 3.2 percent fall.
The board expects GDP to expand 1.3 percent next fiscal year, up from 1.2 percent it forecast in October.
On the deflation front, however, BOJ said prices will probably keep falling for another couple of years. It pledged to maintain an extremely easy monetary policy to help boost prices.
"The central bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," Shirakawa said.
Deflation can drag down an economy by lowering company profits, leading to wage cuts and postponed purchases by wary consumers. Japan is especially sensitive to the issue after experiencing the "Lost Decade" in the 1990s, when it was beset by extended price falls.
Japan's recovery also faces other headwinds, including a resurgent yen. The currency has gained about 3 percent against the dollar since the beginning of the year.
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