Tokyo, August 11: Japan’s central bank kept its key interest rate unchanged at 0.1 percent Tuesday, and maintained a cautious view on the strength of recovery in the world’s second-largest economy.
The Bank of Japan’s policy board voted unanimously to keep the overnight call rate unchanged at the end of a two-day meeting. Markets had expected no change in the rate.
In neighboring South Korea, the central bank also left its key interest rate unchanged at a record low of 2 percent for the sixth straight month.
Both banks pointed to signs of a gradual recovery but remained cautious about the outlook for the export-dependent Asian economies.
The Bank of Japan said “economic conditions have stopped worsening” but warned unemployment remained high and consumer spending was lagging.
A lingering problem for Japan, even as manufacturing recovers from the global economic downturn, is its unemployment rate, which reached a six-year high in June of 5.4 percent, rising from 5.2 percent in May.
Hiroshi Shiraishi, economist at BNP Paribas in Tokyo, said the BOJ was unlikely to raise interest rates for some time because of worries about the rebound running out of steam in coming months.
The recent good news about an improvement in manufacturing could be short-lived, he said, because it was driven by the temporary effects of government stimulus measures and companies around the world rebuilding severely depleted inventories.
“We are expecting the rebound to slow down somewhat later this year or early next year,” Shiraishi said.
The central bank has kept its key rate unchanged at near zero since December, when it cut the rate from 0.3 percent.
Bank of Japan Gov. Masaaki Shirakawa struck a cautionary note, noting that consumer spending was up in green cars and flat-panel TVs, which have been boosted by government incentives, but remained sluggish at department stores and supermarkets.
“The improved spending has been limited in scope,” he told reporters at the Bank of Japan. “Even if we are undergoing a recovery, we cannot be certain of its strength.”
The Cabinet Office in a monthly economic report Tuesday also maintained a cautious view. It said the economy was “picking up” but remained in a “difficult situation.”
Japanese exports and industrial production were rebounding, indicating that the worst of the recession may be over, but unemployment was worsening, the report said.
The benchmark for Tokyo shares extended its rally for the fourth day and rose to a fresh 10-month high Tuesday. The Nikkei 225 stock average gained a slight 0.6 percent to its highest finish since early October as investors awaited for the outcome of a Fed meeting and U.S. July retail sales data.
Export-dependent companies, including Toyota Motor Corp. and Sony Corp., have been hit hard by the plunge in global demand. They have posted losses in recent quarters and slashed jobs and production.
But rising global demand, especially from China and other emerging markets, is gradually boosting manufacturing again although levels are still below what they were a year earlier.
Japan’s core machinery orders, a closely watched indicator of capital spending, jumped in June for the first time in four months, surging 9.7 percent from the previous month, according to data released this week.
Japan’s economy shrank at a 14.2 percent annual pace in the first quarter, marking the worst quarterly contraction ever for the world’s second-largest economy. Second quarter gross domestic product data are scheduled to be released next week
Bureau Report
Tokyo: Japan’s central bank kept its key interest rate unchanged at 0.1 percent Tuesday, and maintained a cautious view on the strength of recovery in the world’s second-largest economy.
The Bank of Japan’s policy board voted unanimously to keep the overnight call rate unchanged at the end of a two-day meeting. Markets had expected no change in the rate.
In neighboring South Korea, the central bank also left its key interest rate unchanged at a record low of 2 percent for the sixth straight month.
Both banks pointed to signs of a gradual recovery but remained cautious about the outlook for the export-dependent Asian economies.
The Bank of Japan said “economic conditions have stopped worsening” but warned unemployment remained high and consumer spending was lagging.
A lingering problem for Japan, even as manufacturing recovers from the global economic downturn, is its unemployment rate, which reached a six-year high in June of 5.4 percent, rising from 5.2 percent in May.
Hiroshi Shiraishi, economist at BNP Paribas in Tokyo, said the BOJ was unlikely to raise interest rates for some time because of worries about the rebound running out of steam in coming months.
The recent good news about an improvement in manufacturing could be short-lived, he said, because it was driven by the temporary effects of government stimulus measures and companies around the world rebuilding severely depleted inventories.
“We are expecting the rebound to slow down somewhat later this year or early next year,” Shiraishi said.
The central bank has kept its key rate unchanged at near zero since December, when it cut the rate from 0.3 percent.
Bank of Japan Gov. Masaaki Shirakawa struck a cautionary note, noting that consumer spending was up in green cars and flat-panel TVs, which have been boosted by government incentives, but remained sluggish at department stores and supermarkets.
“The improved spending has been limited in scope,” he told reporters at the Bank of Japan. “Even if we are undergoing a recovery, we cannot be certain of its strength.”
The Cabinet Office in a monthly economic report Tuesday also maintained a cautious view. It said the economy was “picking up” but remained in a “difficult situation.”
Japanese exports and industrial production were rebounding, indicating that the worst of the recession may be over, but unemployment was worsening, the report said.
The benchmark for Tokyo shares extended its rally for the fourth day and rose to a fresh 10-month high Tuesday. The Nikkei 225 stock average gained a slight 0.6 percent to its highest finish since early October as investors awaited for the outcome of a Fed meeting and U.S. July retail sales data.
Export-dependent companies, including Toyota Motor Corp. and Sony Corp., have been hit hard by the plunge in global demand. They have posted losses in recent quarters and slashed jobs and production.
But rising global demand, especially from China and other emerging markets, is gradually boosting manufacturing again although levels are still below what they were a year earlier.
Japan’s core machinery orders, a closely watched indicator of capital spending, jumped in June for the first time in four months, surging 9.7 percent from the previous month, according to data released this week.
Japan’s economy shrank at a 14.2 percent annual pace in the first quarter, marking the worst quarterly contraction ever for the world’s second-largest economy. Second quarter gross domestic product data are scheduled to be released next week
–Agencies