RTTNews - Friday, the Bank of Japan upwardly revised its economic view for the first time since July 2006. The central bank also decided to leave the key interest rate unchanged and expanded the range of eligible collateral to ensure financial market stability.

BoJ assessed that economic conditions have been deteriorating, but exports and production are beginning to level out. Looking forward, exports and production are expected to start recovering despite the continuing weakness in domestic private demand. The pace of deterioration in economic conditions is likely to moderate gradually, leading to a leveling out of the economy, the central bank said.

Last month, the central bank had stated that the economic conditions in Japan have deteriorated significantly.

At the end of two-day policy meeting, the Policy Board of Bank unanimously decided to maintain the uncollateralized overnight call rate at 0.1% as expected. The previous change in interest rates was a 20 basis point cut implemented in December 2008.

The central bank also expanded the range of eligible collateral to ensure financial market stability by further facilitating money market operations. The central bank decided today to accept bonds issued by the governments of the United States, the United Kingdom, Germany, and France as eligible collateral.

Regarding price outlook, the central bank is of the view that inflation will possibly drop more than expected, if the downside risks to the economy materialize or medium to long term inflation expectations decline.

Elsewhere, Japanese Finance and Economy Minister Kaoru Yosano reportedly said the central bank will not intervene in the currency markets right now.

On May 19, the Cabinet Office in its preliminary report revealed that the Japanese economy contracted by a record 4% in the first quarter of 2009 compared to the previous three months.

According to Yosano, signs of improvement or bottoming or improvement are seen in some areas of the economy like exports and industrial output.

Moody's Investors Service said in a report recently that the increase in Japanese government debt to fund its stimulus spending will not for now undermine the government's solvency. The government bond rating was mainly supported by the special features of the Japanese system, which make it affordable despite its exceptional size and the increase in such debt does not have adverse implications for solvency in the near to medium term.

Earlier in the week, the agency had unified the government of Japan's local and foreign currency bond ratings at Aa2.

For comments and feedback: contact editorial@rttnews.com