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Japan's central bank keeps key rate unchanged
(Agencies)
Updated: 2009-01-22 17:24 TOKYO – Japan's central bank kept its already super-low interest rate on hold Thursday as widely expected but sharply downgraded its economic outlook amid an ever-deepening recession.
"Exports have been decreasing substantially reflecting a slowdown in overseas economies, and domestic demand has become weaker against the background of declining corporate profits and the worsening employment and income situation in the household sector," the central bank said in its statement. "Under these circumstances, economic conditions have been deteriorating significantly and are likely to continue deteriorating for the time being." The BOJ now predicts that the world's second largest economy will shrink 1.8 percent this fiscal year through March and will contract 2 percent next fiscal year. But with rates already super low, the Bank of Japan has little room to maneuver on the interest rate front, despite renewed concerns this week about the health of the global banking sector. "There's really no room to cut," said Takuji Okubo, an economist at Merrill Lynch in Tokyo. "It's 10 basis points now, and the BOJ actually doesn't want to cut it to zero percent because ... there's no incentive for anybody to lend at zero percent." The policy board cut the overnight call rate target to 0.1 percent from 0.3 percent in December, joining the U.S. Federal Reserve in lowering borrowing rates to nearly zero amid an ever-worsening outlook for the global economy. Japan's benchmark rate was effectively zero from 2001 to 2006 under the central bank's quantitative easing policy, through which it flooded the financial system with liquidity to fight deflation, boost lending and stimulate growth. Economists, as well as the central bank, have generally concluded in the years since then that the policy helped money markets but had limited impact on the real economy. |
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