BOJ Keeps Rate at 0.5%


The Bank of Japan kept interest rates on hold at the first meeting chaired by Masaaki Shirakawa and cut its assessment of the economy for the first time in four months amid concern a recession may be looming.

Shirakawa may want to gather more evidence before deciding whether the world's second-largest economy needs the first rate cut in seven years. Recent economic data have been mixed, with export growth and inflation accelerating as corporate sentiment fell to a four-year low and production cooled.

Shirakawa had been deputy since March 12 and acting governor since the government failed to appoint a successor to Toshihiko Fukui a week later. Yesterday in parliament he repeated that the bank is ready to act flexibly if needed.

It's ``relatively probable'' that Japan's economy will regain momentum after slowing, he said, adding that risks remain as the U.S. faces the worst credit crisis since the Great Depression and global financial markets are still volatile.

At the same time, he said the bank must bear in mind that providing too much stimulus to the economy in the short term could jeopardize long-term growth.

The yen traded at 102.34 per dollar as of 4:16 p.m. in Tokyo from 102.60 before the interest-rate announcement, as a decline in Asian stocks prompted investors to pare holdings of higher-yielding assets funded in the currency.

Companies have become ``cautious,'' the central bank said today, a week after its Tankan survey showed confidence among large manufacturers fell to a four-year low and businesses plan to reduce investment. Attention needs to be paid to developments in other economies, global financial markets and the effects of high energy and raw materials prices, it said.

Most economists expect the Bank of Japan to maintain a wait-and-see stance this year, according to a Bloomberg News survey. Of 30 economists surveyed, four predict a cut by December and three expect an increase. The remaining 23 said borrowing costs would stay on hold in 2008.

Some reports show the expansion is still intact. Export growth quickened in February as demand from emerging economies helped manufacturers ride out the U.S. slump. Wages rose for a second month, the first back-to-back gains since July 2006.


TradingEconomics.com, Bloomberg
4/9/2008 6:31:06 AM