Japan central bank keeps interest rates near zero
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 Tuesday 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 central bank maintained its assessment of the economy, saying it shows “further signs of a moderate recovery” but acknowledged growing headwinds.
“Against the backdrop of increased uncertainty about the future, especially for the U.S. 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 the central bank 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 Bank of Japan 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 Bank of Japan Gov. 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 ($10.9 billion) jobs-focused stimulus package but has not called for currency intervention. Ozawa has said he would intervene in foreign exchange markets and promised at least 2 trillion yen ($23.8 billion) in stimulus measures.
Source: AP