Tokyo: Japan’s central bank left its key interest rate steady Tuesday amid increasing nervousness about the country’s slowing economy.
Facing the prospect of recession, the seven-member central bank policy board voted unanimously during a two-day meeting to keep the benchmark overnight call rate at 0.5% for the 18th straight month.
In its statement, the central bank downgraded its overall view of the world’s No. 2 economy, saying growth has been “sluggish against the backdrop of high energy and materials prices and weaker growth in exports.”
It also predicted higher inflation in the coming months due to rising food and energy prices.
Last week, the government reported that Japan’s economy shrank for the first time in a year in the second quarter, with gross domestic product registering a 2.4% annualized decline.
The Cabinet Office’s August report earlier in the month also painted a dark picture of Japan’s economic health.
“The economy is recently weakening,” it said, warning of weak exports, sluggish corporate profits and investment, and tepid private consumption.
“Attention should be given to further downside risks that could stem from developments of the US economy, the stock and exchange markets, and oil prices,” the Cabinet said.
Japanese officials scrambling to control the fallout have announced an emergency economic stimulus package designed to help the country cope with high fuel and commodity prices.
Further details, including its scale and funding, are expected to be released this week.
The central bank has not tightened monetary policy since February 2007, and economists predict it won’t make any moves for about a year. The central bank will hold its next policy meeting 16-17September.