ID :
16394
Wed, 08/20/2008 - 00:17
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https://oananews.org//node/16394
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BOJ warns Japan's economy to remain 'sluggish'
TOKYO, Aug. 19 Kyodo - The Bank of Japan left its key interest rate unchanged at 0.5 percent in a widely expected move Tuesday, with BOJ Governor Masaaki Shirakawa warning the economy will remain ''sluggish'' on rising inflation and slowing exports.
The central bank also downgraded its overall assessment of the country's economic conditions for the second consecutive month, saying that ''growth has been sluggish'' -- an expression used for the first time in almost 10 years. In July, the bank only said that the economy was ''slowing further.'' The BOJ's Policy Board voted unanimously to keep the target rate for unsecuredovernight call money unchanged for the 18th straight month.
The bank ''needs to remain cautious about the risks of both higher inflation and slower economic growth,'' Shirakawa told a news conference after a two-day policy meeting. The Japanese economy ''will remain sluggish for a while.'' The BOJ also said in a statement that rising energy and raw material costs aswell as weak exports have increasingly hurt the economy.
The bank pointed to risk factors including unstable global financial marketsand the economic slowdown in the United States, Japan's main export market.
But Shirakawa denied the possibility that the economy will deteriorate seriously, saying the current environment is different from a decade ago, whenJapan saw excess capital spending and corporate employment.
With regard to recent falls in crude oil prices, the governor said the decline is basically good for the Japanese economy although ''it is unclear whether the trend will take root.'' On prices, the BOJ said in the statement that ''global inflationary pressures remain high.'' The core consumer price inflation rate, excluding volatile fresh food prices, is currently around 2 percent on year, the highest level since the early 1990s,due mainly to soaring food and petroleum product prices.
The BOJ warned prices could go ''somewhat higher'' over coming months beforemoderating later.
Despite those risks, which it said ''demand attention,'' the central banksounded an optimistic note on Japan's economic outlook.
The economy ''is expected to return gradually to a moderate growth path as commodity prices level out and overseas economies move out of theirdeceleration phase,'' it said.
On future monetary policy, the BOJ said as always that it will closely consider factors posing upside or downside risks and ''implement its policies in a flexible manner accordingly.''The BOJ meeting came as the nation's economy has been weakening.
Earlier this month, the government admitted in its monthly report that Japan's economy may have entered a contraction phase, indicating that the country's longest period of postwar economic expansion, since February 2002, may haveended.
Government figures, released last Wednesday, showed that the economy shrank a real 0.6 percent in the April-June period from the previous quarter -- thefirst negative gross domestic product growth in Japan in a year.
Amid rising speculation that the BOJ could be forced to cut interest rates in order to boost the flagging economy, the bank dared to balance its concerns, referring to inflationary risks, implying the need to raise rates, said HideoKumano, chief economist at the Dai-ichi Life Research Institute.
''It signals that the BOJ does not want to completely kill off the chance of a rate hike'' as it is hoping to normalize the country's unusually low interestrates, he said.
But Kumano added, ''Whichever direction, the current situation will not allow the bank to shift interest rates.''
The central bank also downgraded its overall assessment of the country's economic conditions for the second consecutive month, saying that ''growth has been sluggish'' -- an expression used for the first time in almost 10 years. In July, the bank only said that the economy was ''slowing further.'' The BOJ's Policy Board voted unanimously to keep the target rate for unsecuredovernight call money unchanged for the 18th straight month.
The bank ''needs to remain cautious about the risks of both higher inflation and slower economic growth,'' Shirakawa told a news conference after a two-day policy meeting. The Japanese economy ''will remain sluggish for a while.'' The BOJ also said in a statement that rising energy and raw material costs aswell as weak exports have increasingly hurt the economy.
The bank pointed to risk factors including unstable global financial marketsand the economic slowdown in the United States, Japan's main export market.
But Shirakawa denied the possibility that the economy will deteriorate seriously, saying the current environment is different from a decade ago, whenJapan saw excess capital spending and corporate employment.
With regard to recent falls in crude oil prices, the governor said the decline is basically good for the Japanese economy although ''it is unclear whether the trend will take root.'' On prices, the BOJ said in the statement that ''global inflationary pressures remain high.'' The core consumer price inflation rate, excluding volatile fresh food prices, is currently around 2 percent on year, the highest level since the early 1990s,due mainly to soaring food and petroleum product prices.
The BOJ warned prices could go ''somewhat higher'' over coming months beforemoderating later.
Despite those risks, which it said ''demand attention,'' the central banksounded an optimistic note on Japan's economic outlook.
The economy ''is expected to return gradually to a moderate growth path as commodity prices level out and overseas economies move out of theirdeceleration phase,'' it said.
On future monetary policy, the BOJ said as always that it will closely consider factors posing upside or downside risks and ''implement its policies in a flexible manner accordingly.''The BOJ meeting came as the nation's economy has been weakening.
Earlier this month, the government admitted in its monthly report that Japan's economy may have entered a contraction phase, indicating that the country's longest period of postwar economic expansion, since February 2002, may haveended.
Government figures, released last Wednesday, showed that the economy shrank a real 0.6 percent in the April-June period from the previous quarter -- thefirst negative gross domestic product growth in Japan in a year.
Amid rising speculation that the BOJ could be forced to cut interest rates in order to boost the flagging economy, the bank dared to balance its concerns, referring to inflationary risks, implying the need to raise rates, said HideoKumano, chief economist at the Dai-ichi Life Research Institute.
''It signals that the BOJ does not want to completely kill off the chance of a rate hike'' as it is hoping to normalize the country's unusually low interestrates, he said.
But Kumano added, ''Whichever direction, the current situation will not allow the bank to shift interest rates.''
