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BoJ leaves interest rates unchanged

BoJ leaves interest rates unchanged
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First Published: Wed, Apr 30 2008. 10 49 AM IST
Updated: Wed, Apr 30 2008. 10 49 AM IST
Tokyo: Japan’s central bank has decided to leave its main interest rate unchanged at 0.5% at the end of a one-day meeting, amid worries about the health of the global economy.
The Bank of Japan (BoJ) in 2006 raised interest rates for the first time in almost six years. It hiked rates again in February last year but has held them steady since then amid worries about the economic climate and financial market volatility.
The decision was made unanimously by seven members of the monetary policy board, which currently has two vacancies.
The BoJ gave no immediate explanation for the decision, which had been widely expected in financial markets.
Central bank governor Masaaki Shirakawa, who chaired his first monetary policy meeting since officially taking up the top post earlier this month, was due to hold a press conference later in the day.
Economic growth
Japan’s central bank is expected to cut its forecast for 2.1% economic growth in this fiscal year to March later Wednesday when it releases its twice-yearly outlook for the economy and consumer prices.
Analysts also expect the BoJ to soften its previous stance under former governor Toshihiko Fukui in favour of gradual interest rate rises.
“The BoJ is making an adjustment from its earlier hawkish stance,” said Lehman Brothers economist Hiroshi Shiraishi.
Reflecting the fragile health of Asia’s largest economy, the government reported earlier in the day that Japan’s factory output fell by 3.1% in March, the fastest pace in five years, amid a decline in US-bound exports.
Many economists expect the BoJ to leave interest rates unchanged at 0.5% for the foreseeable future, although some still see a chance of a rate hike later this year after inflation hit a decade high of 1.2% in March.
“The bank will probably keep rates on hold for a few months yet to gauge the extent of the US recession and the fallout for the Japanese economy,” analyst Julian Jessop of Capital Economics in London wrote in a note to clients.
“But we expect the next quarter point hike later in the year, perhaps as soon as September,” he added, predicting rates would rise to about 2% by early 2010.
Japan’s central bank for years battled to end deflation with an unprecedented policy of virtually free credit.
But the return of inflation in Asia’s largest economy has also been met with concern among policymakers because it is being driven by rising oil and food costs that are making life tougher for households and companies.
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First Published: Wed, Apr 30 2008. 10 49 AM IST
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