Bank of Japan keeps interest rates steady

Tokyo: Japan’s central bank kept interest rates steady on 20 May as widely expected amid lingering worries about a global slowdown.

The policy board was unanimous in keeping the benchmark overnight call rate unchanged at 0.5% at the end of a two-day meeting, according to the Bank of Japan (BoJ).

Soaring gas prices, rising material costs and signs of slower global growth are weighing on the world’s second-largest economy, which depends heavily on exports.

Economists predict that the Bank of Japan is likely to do nothing for about a year unless economic signs change dramatically.

Much of last year, market watchers had expected the BoJ would raise its key interest rate as Japan’s economy gained steam. But the global economic turmoil set off at midyear by the U.S. subprime mortgage crisis scotched that view, and a jittery market began to expect a move in the opposite direction, a rate cut.

The Japanese economy has proved remarkably solid recently. Last week, the government said the economy grew at a stronger-than-expected 3.3% annual pace in the first quarter, racking up its third consecutive quarter of growth.

Still, economists warn that export growth could stumble if overseas economies falter, and domestic spending will probably stay weak if paychecks aren’t growing.

Since 1999, Japan had kept interest rates generally at about zero to jump start a lagging economy. It ended its zero interest policy in July 2006 when it raised its key rate to 0.25%, the first hike in six years.

In a recent report, Lehman Brothers said expectations for an interest rate cut had also dwindled. The global economy was unlikely to worsen so much that pressure for a rate cut would rise, the investment bank said. A rate increase was unlikely until the latter half of next year, it said.

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