ID :
27818
Sat, 11/01/2008 - 00:59
Auther :
Shortlink :
https://oananews.org//node/27818
The shortlink copeid
BOJ cuts key interest rate to 0.3%, joining int`l credit easing
TOKYO, Oct. 31 Kyodo -
The Bank of Japan cut its key interest rate to 0.3 percent from 0.5 percent Friday for the first rate reduction in more than seven years, following credit easing by other central banks in order to fight the global credit crisis.
But the size of the rate cut -- at 0.2 percentage point -- was less than market
expectations of a full quarter-point cut, prompting a view to spread that the
effect of the new policy to boost the sluggish Japanese economy may be limited.
The central bank's Policy Board decided to lower its target rate for unsecured
overnight call money, but the decision-making body was divided in voting, with
four of the eight members opposing the decision.
BOJ Governor Masaaki Shirakawa, who chairs the board and finalized the Friday
decision, revealed that three of the opposing four had hoped for a 0.25 point
cut. Meanwhile the eighth argued for keeping the key lending rate steady at 0.5
percent.
Shirakawa denied that the vote revealed serious cracks on the board, stressing
all members share the baseline view that Japan's economic outlook is gloomy.
''Uncertainty about Japan's economic outlook has been remarkably rising'' given
the global economic slowdown, Shirakawa told reporters. The BOJ has to ''pay
attention to downside risks to the economy.''
The BOJ also released its biannual Outlook for Economic Activity and Prices
report that indicated the Japanese economy is slowing its pace of expansion and
cut its growth estimate for the current business year through March to 0.1
percent in real gross domestic product terms from 1.2 percent projected in
July.
''Economic activity in Japan has become increasingly sluggish due to the
effects of earlier increases in energy and material prices and the leveling off
of exports,'' the bank said in the report.
Given increasing signs of the global economy slowing, U.S. and European central
banks have jointly cut interest rates to address liquidity problems in
financial markets following the worldwide credit crisis.
With the reduction in its target rate for unsecured overnight call money, the
BOJ apparently demonstrated its stance in cooperating with other major central
banks in fighting the downturn in the world economy amid the global financial
meltdown.
The move is also expected to help prevent the yen from rising further against
the U.S. dollar and other major currencies, which would increasingly hurt
Japanese exporters.
U.S. and European central banks cut their rates in a coordinated action on Oct.
8 and the U.S. Federal Reserve slashed its key rate further by a half
percentage point to 1.0 percent on Wednesday.
''The BOJ's latest action can be seen as part of the joint rate cut,'' said
Takahide Kiuchi, chief economist at Nomura Securities Co.
But ''it seems the BOJ is not expecting the rate cut to have much effect to
shore up the sluggish Japanese economy,'' he said, adding, ''Rather, the bank
is apparently hoping that (the rate cut) would help stabilize financial
markets.''
The BOJ had held the benchmark borrowing cost steady at 0.5 percent over the
past 20 months, stressing the need to monitor both downside risks to growth and
upside risks to price stability.
The rate cut is the first since March 2001, when the BOJ introduced the
''quantitative easing'' policy, under which the bank flooded the financial
system with ample liquidity in order to drive the rate to near zero.
Separately, the Japanese government announced a 27-trillion-yen additional
economic stimulus package on Thursday.
The central bank's credit easing is in harmony with the government's move to
shore up what the BOJ calls a ''sluggish'' domestic economy at a time when the
global economic slowdown has weakened Japanese exports, while deteriorating
business sentiment has capped corporate capital spending.
However, some hold a view that the country's credit conditions are already
accommodative enough with the lowest interest rate level among major economies,
and that lowering it further may not really help prop up the economy.
Shirakawa acknowledged the interest rate of 0.5 percent was low enough and then
said credit conditions may not be necessarily eased sufficiently even with
sufficiently low interest rates.
''It is appropriate to ensure eased conditions in accordance with changes'' in
the surrounding environment, Shirakawa said, justifying what appears to be an
unwanted interest rate cut for the central bank.
Kiuchi of Nomura Securities said, ''The BOJ could cut the rate further to zero
percent toward the year's end if the global and domestic economies
deteriorate.''
Other than the interest rate cut, the BOJ decided to pay interest on reserves
that commercial banks are required to deposit at the central bank, an unusual
measure designed to prevent the key interest rate from falling excessively,
while the bank provides ample liquidity into money markets.
The payment of interest on the excess part over the legal limit of reserves in
current account deposits, which usually earn no interest, is believed to
encourage lenders to park excess cash at the BOJ, rather than invest it in the
overnight market at a lower rate.
Thus, such a measure would effectively set a de facto lower limit for rates in
the call money market, experts say.
The BOJ also decided to cut its basic loan rate, with which banks borrow
directly from the central bank against certain collateral under its
complementary lending facility, to 0.5 percent from 0.75 percent.
The rate, also known as the Lombard facility rate, provides a virtual cap on
overnight rates, since if interbank rates crept higher, financial institutions
would simply go to the central bank for funds.
==Kyodo
The Bank of Japan cut its key interest rate to 0.3 percent from 0.5 percent Friday for the first rate reduction in more than seven years, following credit easing by other central banks in order to fight the global credit crisis.
But the size of the rate cut -- at 0.2 percentage point -- was less than market
expectations of a full quarter-point cut, prompting a view to spread that the
effect of the new policy to boost the sluggish Japanese economy may be limited.
The central bank's Policy Board decided to lower its target rate for unsecured
overnight call money, but the decision-making body was divided in voting, with
four of the eight members opposing the decision.
BOJ Governor Masaaki Shirakawa, who chairs the board and finalized the Friday
decision, revealed that three of the opposing four had hoped for a 0.25 point
cut. Meanwhile the eighth argued for keeping the key lending rate steady at 0.5
percent.
Shirakawa denied that the vote revealed serious cracks on the board, stressing
all members share the baseline view that Japan's economic outlook is gloomy.
''Uncertainty about Japan's economic outlook has been remarkably rising'' given
the global economic slowdown, Shirakawa told reporters. The BOJ has to ''pay
attention to downside risks to the economy.''
The BOJ also released its biannual Outlook for Economic Activity and Prices
report that indicated the Japanese economy is slowing its pace of expansion and
cut its growth estimate for the current business year through March to 0.1
percent in real gross domestic product terms from 1.2 percent projected in
July.
''Economic activity in Japan has become increasingly sluggish due to the
effects of earlier increases in energy and material prices and the leveling off
of exports,'' the bank said in the report.
Given increasing signs of the global economy slowing, U.S. and European central
banks have jointly cut interest rates to address liquidity problems in
financial markets following the worldwide credit crisis.
With the reduction in its target rate for unsecured overnight call money, the
BOJ apparently demonstrated its stance in cooperating with other major central
banks in fighting the downturn in the world economy amid the global financial
meltdown.
The move is also expected to help prevent the yen from rising further against
the U.S. dollar and other major currencies, which would increasingly hurt
Japanese exporters.
U.S. and European central banks cut their rates in a coordinated action on Oct.
8 and the U.S. Federal Reserve slashed its key rate further by a half
percentage point to 1.0 percent on Wednesday.
''The BOJ's latest action can be seen as part of the joint rate cut,'' said
Takahide Kiuchi, chief economist at Nomura Securities Co.
But ''it seems the BOJ is not expecting the rate cut to have much effect to
shore up the sluggish Japanese economy,'' he said, adding, ''Rather, the bank
is apparently hoping that (the rate cut) would help stabilize financial
markets.''
The BOJ had held the benchmark borrowing cost steady at 0.5 percent over the
past 20 months, stressing the need to monitor both downside risks to growth and
upside risks to price stability.
The rate cut is the first since March 2001, when the BOJ introduced the
''quantitative easing'' policy, under which the bank flooded the financial
system with ample liquidity in order to drive the rate to near zero.
Separately, the Japanese government announced a 27-trillion-yen additional
economic stimulus package on Thursday.
The central bank's credit easing is in harmony with the government's move to
shore up what the BOJ calls a ''sluggish'' domestic economy at a time when the
global economic slowdown has weakened Japanese exports, while deteriorating
business sentiment has capped corporate capital spending.
However, some hold a view that the country's credit conditions are already
accommodative enough with the lowest interest rate level among major economies,
and that lowering it further may not really help prop up the economy.
Shirakawa acknowledged the interest rate of 0.5 percent was low enough and then
said credit conditions may not be necessarily eased sufficiently even with
sufficiently low interest rates.
''It is appropriate to ensure eased conditions in accordance with changes'' in
the surrounding environment, Shirakawa said, justifying what appears to be an
unwanted interest rate cut for the central bank.
Kiuchi of Nomura Securities said, ''The BOJ could cut the rate further to zero
percent toward the year's end if the global and domestic economies
deteriorate.''
Other than the interest rate cut, the BOJ decided to pay interest on reserves
that commercial banks are required to deposit at the central bank, an unusual
measure designed to prevent the key interest rate from falling excessively,
while the bank provides ample liquidity into money markets.
The payment of interest on the excess part over the legal limit of reserves in
current account deposits, which usually earn no interest, is believed to
encourage lenders to park excess cash at the BOJ, rather than invest it in the
overnight market at a lower rate.
Thus, such a measure would effectively set a de facto lower limit for rates in
the call money market, experts say.
The BOJ also decided to cut its basic loan rate, with which banks borrow
directly from the central bank against certain collateral under its
complementary lending facility, to 0.5 percent from 0.75 percent.
The rate, also known as the Lombard facility rate, provides a virtual cap on
overnight rates, since if interbank rates crept higher, financial institutions
would simply go to the central bank for funds.
==Kyodo
