Bank of Japan Keeps Rate at 0.5%


The Bank of Japan kept interest rates on hold amid concern that slowing global economic growth will cut demand for exports and costlier energy and materials will damp spending at home.

Governor Toshihiko Fukui and his colleagues left the overnight lending rate at 0.5 percent, the lowest among major economies, the central bank said today in Tokyo. Fukui, who has called for gradual rate increases since 2006, will probably finish his term on March 19 by leaving credit costs unchanged.

Fukui said financial markets remain volatile and surging raw materials costs are threatening growth by squeezing profits and forcing employers to keep wages low. A report yesterday that showed gross domestic product expanded faster than analysts predicted last quarter failed to allay concern that exports and capital spending, Japan's two main growth drivers, are cooling.

The economy expanded an annualized 3.7 percent last quarter, accelerating from 1.3 percent in the previous three months. Business spending and exports accounted for almost all of the growth as sales to Asia made up for waning U.S. demand.

The central bank lowered its evaluation of the world economy and said Japan's growth is likely to slow temporarily.

Companies may pare investment as the U.S. slowdown spreads. Machinery orders, a harbinger of capital spending, fell for a second month in December. Manufacturers plan to cut production in January and February, the government said last month.

Shipments to the U.S., Japan's biggest market, fell for a fourth month in December. Federal Reserve Chairman Ben S. Bernanke yesterday indicated policy makers are prepared to lower rates further as the U.S. economy continues to deteriorate.

The Fed cut its benchmark rate by 1.25 percentage points last month, the steepest reduction since 1990. European Central Bank President Jean-Claude Trichet this month said uncertainty about growth is ``unusually high,'' fueling speculation of a rate cut in Europe from 4 percent.

 


TradingEconomics.com, Bloomberg
2/15/2008 6:39:11 AM