BOJ leaves key rate intact, holds off on fresh steps

TOKYO, Sept. 7 Kyodo - The Bank of Japan on Wednesday left its key interest rate unchanged effectively at zero percent in a widely expected move to prop up the country's quake-hit economy, but pressure for additional monetary easing steps may pile up in the face of the strong yen and the decelerating U.S. and European economies.
BOJ Governor Masaaki Shirakawa said after the two-day policy meeting ended the same day that the central bank held off on new policy steps because it has already decided at the previous policy meeting to expand its asset purchase program by ''counting in various uncertain factors in advance.''
''It is not that the bank did not decide (on additional measures), but our recognition is that we are pursuing a powerful monetary easing at this moment,'' he told a press conference.
The BOJ said in a statement issued after the meeting that the nation's economy is ''picking up steadily'' after the March 11 devastating earthquake and tsunami disrupted the nationwide supply chain of industrial products and weakened consumption, while noting that the supply-side constraints caused by the disasters have been ''mostly resolved.''
''Production and exports have continued to increase, almost recovering to prequake levels,'' it said.
Looking ahead, the BOJ projected that Japan's economy is expected to return to a moderate recovery path from the second half of fiscal 2011, backed by an increase in exports reflecting firm overseas demand and a rise in domestic demand.
But the U.S. economy and the sovereign debt problems in Europe are matters that would continue to warrant attention, with Shirakawa referring to the European debt woes as a ''major risk factor'' to the global economy.
''It is necessary to carefully monitor how Japan's economy will be affected by the uncertainty regarding the developments overseas and the ensuing fluctuations in the foreign exchange and financial markets,'' the statement said.
Japan is paying close attention to the recent strength of the yen against the U.S. dollar and other major currencies, as it has weighed on the profitability of Japanese exporters and sparked fears that domestic manufacturers may increasingly shift their production overseas in pursuit of cheaper costs.
Shirakawa said he has not seen the yen's rise negatively affect the economy in such terms as the amount of exports, but added he is wary that corporate sentiment may be affected at a time when Japan is moving to rebuild itself from the disasters.
As the government is showing its preparedness to present measures at an early date to address the rise of the yen, which has been pushed to record highs, it is likely that the BOJ would face calls for taking further monetary easing steps.
The BOJ said in its statement that it is ''steadily'' carrying out the purchase of financial assets based on the decision made at the monetary policy meeting on Aug. 4 to expand its asset-buying program from 40 trillion yen to 50 trillion yen.
Under the program initially introduced last October, the BOJ is attempting to ease credit conditions by purchasing assets, such as government bonds, corporate debt and exchange-traded funds.
The BOJ's latest decision by the nine-member Policy Board means that it will maintain the 15 trillion yen asset purchase fund and 35 trillion yen fixed-rate fund supply operations.
The central bank has kept the key short-term interest rate, or the uncollateralized overnight call rate, at around zero to 0.1 percent since last October.