ID :
12666
Wed, 07/16/2008 - 11:28
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https://oananews.org//node/12666
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BOJ leaves key interest rate unchanged, cuts FY 2008 growth estimate+
TOKYO, July 16 Kyodo - The Bank of Japan held its key interest rate steady in a widely expected move Tuesday while the central bank downgraded its forecast for the country's economic growth for the current fiscal year amid inflation concerns, fueling speculation that the BOJ will not raise the rate in the coming months.
The bank's Policy Board, wrapping up a two-day meeting, left the target rate for unsecured overnight call money unchanged at 0.5 percent for the 17th month running.
''The biggest reason for Japan's economic slowdown is deterioration in the terms of trade,'' BOJ Governor Masaaki Shirakawa told reporters in reference to the negative impact from rising energy and raw material costs, which have led to surges in prices of gasoline, food and other consumer goods.
Companies are consequently reluctant to boost their capital spending while private consumption is slowing with income growth subdued, he said.
The BOJ now projects the world's second-biggest economy will grow 1.2 percent for the year through next March in real gross domestic product terms, down from the 1.5 percent expansion forecast in its biannual Outlook for Economic Activity and Prices report released in April.
In its monthly report, the BOJ employed a weaker expression, saying economic growth is ''slowing further'' as corporate capital spending and individual consumption have grown weak against the backdrop of rising energy and raw material costs.
On prices, the BOJ estimated that the country's core consumer price index, which excludes volatile fresh food prices, will rise 1.8 percent in fiscal 2008, revised upward from the 1.1 percent rise projected in the April report.
But Shirakawa dismissed the view that Japan is moving into stagflation, a situation where the economy slumps while prices get higher.
The economy is expected to return to the path of ''sustainable growth under price stability'' in the medium to long term, the governor said.
Yasunari Ueno, chief economist at Mizuho Securities Co., said that by downgrading the growth estimates, the BOJ apparently put off the timing for it to raise interest rates.
''As the BOJ further tightens its guard against downside risks, accordingly the chance of rate hikes must become remote,'' Ueno said.
Higher lending rates in Japan may come only after the United States shifts to tighter credit conditions, he added.
The BOJ hailed the recent attempt by U.S. authorities to calm tension on the global financial market by rescuing two major government-sponsored mortgage financiers, Fannie Mae and Freddie Mac, in order to prevent a liquidity crisis.
Shirakawa said the BOJ ''strongly hopes (the move) could contribute to stability.''The U.S. Federal Reserve announced Sunday it would allow Fannie Mae and Freddie Mac to borrow from its discount window while the Treasury Department is seeking the authorization from Congress to increase its credit lines to the mortgage companies and the right to inject taxpayers' money through purchases of equity in them.
The two firms reportedly own or guarantee some $5,000 billion in debt, nearly half the value of all U.S. mortgages, with foreign central banks believed to be holding the bonds sold by the companies.
Shirakawa refused to comment on whether the BOJ holds such debt for fear of causing market confusion. He only said the Japanese central bank invests in ''highly secured assets,'' including government bonds issued in developed countries.
The bank's Policy Board, wrapping up a two-day meeting, left the target rate for unsecured overnight call money unchanged at 0.5 percent for the 17th month running.
''The biggest reason for Japan's economic slowdown is deterioration in the terms of trade,'' BOJ Governor Masaaki Shirakawa told reporters in reference to the negative impact from rising energy and raw material costs, which have led to surges in prices of gasoline, food and other consumer goods.
Companies are consequently reluctant to boost their capital spending while private consumption is slowing with income growth subdued, he said.
The BOJ now projects the world's second-biggest economy will grow 1.2 percent for the year through next March in real gross domestic product terms, down from the 1.5 percent expansion forecast in its biannual Outlook for Economic Activity and Prices report released in April.
In its monthly report, the BOJ employed a weaker expression, saying economic growth is ''slowing further'' as corporate capital spending and individual consumption have grown weak against the backdrop of rising energy and raw material costs.
On prices, the BOJ estimated that the country's core consumer price index, which excludes volatile fresh food prices, will rise 1.8 percent in fiscal 2008, revised upward from the 1.1 percent rise projected in the April report.
But Shirakawa dismissed the view that Japan is moving into stagflation, a situation where the economy slumps while prices get higher.
The economy is expected to return to the path of ''sustainable growth under price stability'' in the medium to long term, the governor said.
Yasunari Ueno, chief economist at Mizuho Securities Co., said that by downgrading the growth estimates, the BOJ apparently put off the timing for it to raise interest rates.
''As the BOJ further tightens its guard against downside risks, accordingly the chance of rate hikes must become remote,'' Ueno said.
Higher lending rates in Japan may come only after the United States shifts to tighter credit conditions, he added.
The BOJ hailed the recent attempt by U.S. authorities to calm tension on the global financial market by rescuing two major government-sponsored mortgage financiers, Fannie Mae and Freddie Mac, in order to prevent a liquidity crisis.
Shirakawa said the BOJ ''strongly hopes (the move) could contribute to stability.''The U.S. Federal Reserve announced Sunday it would allow Fannie Mae and Freddie Mac to borrow from its discount window while the Treasury Department is seeking the authorization from Congress to increase its credit lines to the mortgage companies and the right to inject taxpayers' money through purchases of equity in them.
The two firms reportedly own or guarantee some $5,000 billion in debt, nearly half the value of all U.S. mortgages, with foreign central banks believed to be holding the bonds sold by the companies.
Shirakawa refused to comment on whether the BOJ holds such debt for fear of causing market confusion. He only said the Japanese central bank invests in ''highly secured assets,'' including government bonds issued in developed countries.
