RTTNews - The Bank of Japan board members all agreed that the Japanese economy had stopped worsening, minutes from the June 15 and 16 monetary policy meeting revealed on Tuesday. Moreover, they agreed that economy was likely to show clear signs of leveling out over time, in line with their projections made in April.

At the meeting, the board unanimously voted to hold the uncollateralized overnight call rate at 0.1%. It also kept Japan's long-term growth outlook unchanged, but said the economy could see recovery in the second half of the fiscal year 2009. However, the Board said outlook is accompanied by high uncertainty, as the economic activity was influenced by developments in the global economies.

The Board agreed that the production had started to turn upward, reflecting inventory adjustments both at home and abroad, with the recovery likely to continue for the time being. However one member said the outlook for the second half of the year was highly uncertain.

The Board said the year-on-year change in the consumer price index, excluding fresh food, had declined, and was likely to become negative, due to declining prices of petroleum products, stabilization in food prices as also the increasing slackness in demand and supply conditions.

On commodity prices, the Board said it was showing an increasing trend, which would be a factor influencing the outlook for economic activity and prices. Members attributed various causes for this rise: extreme pessimism that the world economic condition had eased, expectations that demand from China and other emerging economies would grow, and also that the accommodative monetary policy implemented around the world, had added excess liquidity, and caused a speculative inflow of funds to flow into the commodity market.

Some members pointed out that if commodity prices increased too fast relative to the pace of recovery of the world economy, the negative effects on Japan's economy as a result of deterioration in the terms of trade would be greater than positive ones stemming from growth in exports, and this would be a downside risk factor for economic activity in Japan.

Meanwhile, the Board said business fixed investment had declined substantially, with one member saying the rate of drop in business investment would be the strongest for small businesses in the fiscal year 2009, while other members indicated that more attention should be paid to the risk of a further decline in business investments, as firms downgrade their medium to long term expectations of growth. Moreover, private consumption weakened as employment and income situation became severe, and members expect the situation to intensify further, the Board said.

On the financial conditions, the Board said the conditions remained tight, even though there were signs of improvement. Moreover, regarding the corporate funding measures, some members called for ending those measures. One member noted that the Bank's special funds-supplying operations to facilitate corporate financing had been effective in encouraging longer-term interest rates to decline, which was an objective of this measure.

In the meantime, the central bank said it was paying close attention to the downside risks to economic activity and prices, and would continue to exert efforts to bring the Japanese economy back to sustainable growth along with price stability.

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