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Japan leaves rates unchanged on fears of global debt crunch

Thursday, December 20th 2007 - 20:00 UTC
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The Bank of Japan has kept interest rates on hold at 0.5% amid worries over the global credit crisis and dips in domestic business confidence. The expected move came as the central bank revised down its economic growth forecast for Japan for the year to March 2008.

Many analysts believe the central bank will not raise rates until the middle of next year. Japan last raised interest rates in February to 0.5% from 0.25%. Lackluster domestic demand has raised concern about Japan's growth. And there are persistent concerns that an economic slowdown in the US - Japan's biggest export market - as well as the weak dollar could also hinder Japan's economic recovery. The bank's nine-member board voted unanimously to peg rates - the first time since June that hawkish member Atsushi Mizuno has dropped a call for a rate rise. This reinforced the market feeling that there was no hurry to lift rates, analysts said. "The downside risks to our standard economic scenario are increasing," Bank of Japan governor Toshihiko Fukui told reporters. "Uncertainty in global financial markets as well as downside risks regarding the US economy and the world economy remain," he added. Mizuno reversed course "because housing investment has weakened drastically and higher energy prices are impacting corporate as well as consumer sentiment," Fukui said. Activity in the housing construction sector has fallen sharply after the introduction of stricter earthquake resistance standards earlier this year. Japan's economic growth has fallen short of market and government expectations this year due to slowing business investment, the housing sector slump and falling exports to the shaky US economy. The Bank of Japan took a more gloomy view of the Japanese economy in its monthly report released Thursday stating that "Japan's economy is expanding moderately as a trend, although the pace of growth seems to be slowing mainly due to the drop in housing investment". On Wednesday the government slashed its economic growth forecast to 1.3% for the current fiscal year to next March from an earlier projection of 2.1%, but predicted a pick-up to 2% next year. Japan's economy is slowly recovering from a slump stretching back more than a decade, but it has taken longer than expected to decisively exit deflation, or falling consumer prices. Japan's core consumer prices rose for the first time in 10 months in October edging up 0.1%. Japan's benchmark interest rate is by far the lowest among the major economies and the bank's chief has repeatedly warned that low borrowing costs risk creating a boom-bust cycle that could threaten long-term growth. The Bank of Japan last year raised interest rates for the first time in almost six years.

Categories: Economy, International.

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