BOJ keeps key rate steady as Shirakawa appears cool about further cuts+

TOKYO, Nov. 21 Kyodo - The Bank of Japan left its key interest rate unchanged at 0.3 percent Friday in a widely expected move following a rate cut last month, the first in over seven years, with BOJ Governor Masaaki Shirakawa showing reluctance to lower borrowing costs further.

The central bank said the Japanese economy ''has been increasingly sluggish''
due to the lingering effects of increased energy and raw material costs, while
Shirakawa warned that the economy ''could continue to face a tough environment
for the time being,'' adding that the necessary conditions for an economic
recovery may not appear in the short term.
But he also said the level of interest rates in the country is already low
enough and that additional rate cuts could adversely affect financial markets
as well as the economy.
''Given extremely low interest rates, there is a possibility that various
problems could occur in terms of ensuring the smooth functioning of money
markets,'' Shirakawa told reporters.
''Especially in circumstances such as now, in which the functional
deterioration of financial markets has caused serious problems, I think we must
be very careful about that point,'' the BOJ chief added.
Analysts interpreted Shirakawa's comments as indicating his discomfort about
cutting interest rates further.
''It seems (Shirakawa) doesn't want any more cuts psychologically,'' said Hideo
Kumano, chief economist at the Dai-ichi Life Research Institute. ''They (the
BOJ) are rather hoping to spread the effect of the already low interest rate
throughout the economy.''
Shirakawa also said at a news conference that the BOJ will implement necessary
policy measures from a range of options and that he had ordered bank officials
to ensure there is an improvement in corporate financing conditions, which he
said are deteriorating. Shirakawa pointed to a tightening in the market for
commercial paper, or short-term debt issued by companies.
However, experts said the environment surrounding the Japanese economy as well
as the BOJ cannot be easily managed, alluding to the possibility that the bank
may be forced into a further rate cut.
Government data showed Monday that the nation's real gross domestic product
fell an annualized 0.4 percent in the July to September period for a second
straight quarterly decline, adding to the evidence that the economy has entered
a recession.
Other official figures have underlined that the country's exports are declining
sharply. ''Exports are decreasing,'' Shirakawa said. Last month, the BOJ only
said they had ''peaked.''
Economic and Fiscal Policy Minister Kaoru Yosano said earlier this week that
Japan could post negative growth not only in the current business year but also
in the next, in sharp contrast to the view of the BOJ that the economy may show
some signs of recovery in the later half of fiscal 2009 starting April 1.
On Friday, the eight-member BOJ Policy Board voted unanimously to hold the
benchmark lending rate steady. Last month, the central bank cut the target rate
for unsecured overnight call money from 0.5 percent to the current level, the
first rate cut in more than seven years.
The decision came as the global financial turmoil has worsened and follows the
implementation by the BOJ of a series of credit-easing measures, following
other central banks in a joint assault on liquidity problems in funding markets
around the world.
==Kyodo