RTTNews - Board members of the Bank of Japan said that there was no need for additional policy steps to combat the economic slowdown, minutes from the April 30 monetary policy meeting revealed on Wednesday. The members went on to say that policy should be based on long-term perspective.
The number of downgrades among Japanese firms may continue to increase, the board said, also cautioning not to expect a sharp rebound in commodities. The board also decided to wait and watch with interest for the results of the U.S. stress tests on financial institutions. The U.S. economy also needs additional time to bottom out, the board said.
Members concurred that the Bank should continue to conduct monetary policy steadily in line with measures taken so far, which could be divided into three areas: reducing the policy interest rate, ensuring stability in financial markets by providing ample liquidity, and facilitating corporate financing, the minutes said. A few members said that, although it would take some time for Japan's economy to achieve a full-fledged recovery, it was likely to recover gradually and the rate of decline in prices was likely to moderate gradually, as the current monetary and fiscal measures would gradually produce positive effects, and therefore it was not necessary, at this point, to adopt additional monetary policy measures.
At the meeting, the board voted unanimously to keep the overnight call rate unchanged at 0.10 percent. The central bank did not announce any new policy measures along with the monetary policy statement.
The bank cut rates in December by 20 basis points to the current level - marking the first easing October 31, when the bank lowered rates by 20 basis points from 0.50 percent. That rate cut was the bank's first in seven years, and it snapped a strong of 22 consecutive meetings of keeping the rates on hold. The BoJ had kept rates unchanged since a 0.25 percent increase in February 2007.
As for the future conduct of monetary policy, some members expressed the view that, if market conditions or corporate financing conditions became more severe than expected, it would be appropriate for the Bank to respond flexibly to changes in the situation and examine additional measures as necessary, the minutes said
Also, the BoJ said in its semiannual Outlook for Economic Activity and Prices that Japan's economic outlook for the fiscal 2009 deviated downward from the assessment conducted in January. The central bank reiterated that the economic conditions in Japan have deteriorated significantly.
The economy is expected to shrink 3.1 percent this fiscal and to grow 1.2 percent in the fiscal 2010. According to the forecasts made in January, decline in fiscal 2009 was seen at 2 percent and growth for 2010 at 1.5 percent.
On the other hand, the central bank said private consumption recovery would possibly remain sluggish for the projection period, given the improvements in the employment and income situation tend to lag behind any recovery in corporate profits.
Commenting on the inflation environment, the central bank expects a 1.5 percent decline in the CPI excluding fresh food for this fiscal, larger than the 1.1 percent decrease estimated in January. The revision reflects the decline in the prices of petroleum products, the stagnation of food prices and the weakening demand conditions.
The rate of change in the CPI is projected to remain negative in fiscal 2010 given the persistence of the negative output gap and ongoing weak progress in wages. The estimate for 2010 was revised to a 1 percent decline from a 0.4 percent fall forecast previously.
In fiscal 2008, the BoJ forecasts that real GDP will shrink 3.2 percent compared to a 1.8 percent decline estimated in January. Meanwhile, the annual inflation rate for 2008 was left unrevised at 1.2 percent.
Members . concurred that economic conditions had deteriorated significantly given that domestic demand had become weaker against the background of declining corporate profits and the worsening employment and income situation in the household sector, although the pace of decline in exports had started to slow due to progress in adjustments in overseas inventories, the minutes said. Also, financial conditions had remained tight as a whole. As for the outlook for the near future, members agreed that, while domestic private demand was likely to continue weakening, the pace of decline in exports and production was likely to decelerate as inventory adjustments made progress both at home and abroad.
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