Governor Masaaki Shirakawa and his six colleagues left the overnight lending rate at 0.5 percent, the lowest among major economies, the central bank said in a statement in Tokyo today. The decision was unanimous.
The central bank may lower its growth projection in the outlook report at 3 p.m. and signal it will keep rates on hold while gauging the effect of the U.S. slowdown and higher raw- materials costs on Japan's economy. Factory output fell at the fastest pace in five years in March, a report showed today.
Bonds tumbled last week as investors bet global financial markets will stabilize and Japan's central bank may have to raise borrowing costs later this year to quell inflation that reached a decade high in March.
Investors see a 60 percent chance for a rate increase by December, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of an interest-rate cut.
Speculation for a rate increase will probably subside ``given the fundamentals of the economy,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. The central bank ``probably feels uncomfortable about a jump in bond yields when it remains on alert against the downside risks to the economy,'' he said.
The yield on Japan's five-year note fell 5 basis points, the most in two months, to 1.18 percent after the Trade Ministry said production slid 3.1 percent in March from a month earlier. The decline in output was steeper than the 0.8 percent median estimate of 33 economists surveyed by Bloomberg News.
Other reports today showed that while the unemployment rate fell to 3.8 percent, job vacancies became scarcer and household spending slumped 1.6 percent.
The job-to-applicant ratio, a measure of vacancies, showed that the number of positions available for each applicant slid to 0.95, the lowest in almost three years. Economists say the ratio is a better indicator of employment prospects than the jobless rate.