RTTNews - Tuesday, the Bank of Japan decided to hold its key interest rate as expected and raised its economic assessment for the second consecutive month after production and exports of the second largest economy started to show signs of improvement.
Following a two-day Monetary Policy Meeting, the BoJ retained its uncollateralized overnight call rate at 0.1%. The decision came in-line with expectations. The last change in rate was a 0.10% cut in interest rates at the bank's December 2008 meeting.
Today, the central bank said, Japan's economic conditions, after deteriorating significantly, have begun to stop worsening. BoJ expects the economy to show clear evidence of leveling out over time. In the previous meeting, BoJ had stated that economic conditions have been deteriorating but exports and production are beginning to level out against the backdrop of progress in inventory adjustments.
The committee said in the post-meeting policy statement that declining corporate profits, weak employment and income situation continue to weigh on domestic demand. However, exports and production started to show an upward turn along with a rise in public investment. Although there are signs of improvement, financial conditions generally remained tight, the Policy Board said.
The committee expects growth and inflation to remain generally unchanged through 2010. That said, the bank expects the rate of price declines will moderate from the later half of fiscal year 2009, while also expecting the economy to start recovering by the timeframe.
Due to current developments in overseas economies and global financial markets, the central bank said the outlook is attended by a significant level of uncertainty.
The bank said global financial and economic situation, financial conditions in Japan and changes in medium-to-long term growth expectations are risk factors that demand attention. With respect to future prices, the central bank sees a possibility that inflation would decline more than expected, if the downside risks to the economy materialize or medium to long term inflation expectations ease.
Earlier in the month, policy board member Hidetoshi Kamezaki told business leaders in Shizuoka that the economy was going down a steep hill. But the policymaker sees recovery in the near term due to the effect of stimulus measures and easing pace of production declines.
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