RTTNews - Tuesday, the Bank of Japan retained its key interest rate as expected and also maintained its cautious assessment about the economy.
The Policy Board of the BoJ unanimously decided to retain the uncollateralized overnight call rate at 0.1%. The last change in rate was a 0.10% cut in interest rates in the December 2008 meeting. Today, the central bank refrained from announcing more unconventional measures.
Last month, the central bank had decided to extend the unconventional measures by three months to December. The BoJ had also lowered its fiscal 2009 real GDP estimate to minus 3.4% from minus 3.1% estimated in April.
The central bank currently holds the view that Japan's economic conditions have stopped worsening. Exports and production are picking up. While, public investment showed an increasing trend, business fixed investment is declining sharply, mirroring weak corporate profits.
Private consumption remained generally weak in amidst worsening employment and income situation. Although, financial conditions remained tight, it continued to show signs of improvement.
Due to lower prices of petroleum products from high levels seen a year earlier and considerable slack persisting in the economy, the CPI excluding fresh food declined on an annual basis.
Annual fall in the CPI is likely to accelerate for the time being, the central bank added. But, assuming that medium-to long-term inflation expectations remain stable, the rate of decline in the CPI is forecast to moderate from the second half of fiscal 2009 as the effects of the variations in petroleum product prices abate.
The central bank sees prospects for Japan's economy returning to a sustainable growth path with price stability in the longer run, provided these development continue. However, the outlook is attended by a significant level of uncertainty stemming mainly from developments in overseas economies and global financial markets, the report said.
The BoJ projects the economy to start recovering from the second half of fiscal 2009. This recovery would be underpinned partly by the positive effects of measures to stabilize the financial system and of fiscal and monetary policy measures, as well as by a recovery in overseas economies and improvements in global financial markets conditions.
According to the Policy Board, risk factors in economic activity are the continued downside risks to the economy developing from both future global financial and economic situation, alteration in medium to long-term expectations of firms and financial conditions in local economy. With respect to prices, the central bank finds the possibility of inflation declining more than expected, provided the downside risks to the economy materialize or medium to long term inflation expectations ease.
Paying attention for the time being to the downside risks to economic activity and prices, the central bank said it will continue to exert utmost efforts to facilitate the return of the economy to a sustainable growth path with price stability.
In a monthly economic report released today, the Cabinet Office left its economic assessment unchanged in August after upgrading it for three straight months. The government said the economy is showing signs of picking up recently. Further, the economy is expected to improve in the months ahead. At the same time, employment situations and capital spending are set to continue its worsening trend.
Elsewhere, a monthly survey released by the Cabinet Office showed that consumer confidence in July strengthened to 39.7 from 38.1 in June and households' confidence stood at 39.4, up from 37.6 in June.
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