Japan’s central bank yesterday kept its key rate unchanged as it said it would continue measures to boost the faltering economy amid fears of a looming slowdown.
The board made a unanimous decision to keep the key rate at between zero and 0.1 per cent after a two-day meeting, warning that a fragile recovery from deep recession was “pausing” despite showing “signs of a moderate recovery”.
“The bank will continue to carefully examine the outlook for economic activity and prices, and take policy action in an appropriate manner,” the BoJ said in a statement released together with the rate announcement.
The decision followed the BoJ’s move in October to adopt a near-zero rate policy and a five-trillion-yen ($60 billion) asset purchase scheme to lower borrowing costs and help tackle deflation.
The move added to a previous 30-trillion-yen scheme to boost liquidity and spur growth.
The central bank has only just begun its programme of asset purchases announced in October, which includes government and corporate bonds and riskier exchange traded funds (ETFs) and real estate investment trusts (REITS).
However, several economists expect the central bank to be forced to ease policy further – such as by expanding its new asset-buying facility – early next year, as the economy faces the threat of a slowdown.
Many argue that the planned five-trillion-yen fund to buy assets is too small in that it represents a tiny amount of the total money supply.
Recent rises in Japanese bond yields may also compel the BoJ to do more to keep borrowing costs low, analysts say.
Bank of Japan Governor Masaaki Shirakawa told reporters that recent rises in Japanese yields reflect similar moves in US Treasury bills on the back of a brighter outlook for the US economy.
The two-year cash JGB yield stood at 0.205 percent earlier yesterday, compared with around 0.1 per cent in early October when the BoJ announced its latest monetary easing steps.
There also remain challenges of slowing export growth and falling industrial production on weakening overseas demand, while the expiration of government incentives for environmentally-friendly cars has also hit demand at home.
“As for private consumption, demand for some goods has suffered a reverse after the sharp increase seen previously,” the BoJ warned.
“Production has recently declined slightly and business sentiment has also been somewhat weak, particularly in the manufacturing sector,” the central bank said.
Japan, which heavily relies on exports of cars, electronics and machines, has been hit by a strong yen, which makes its goods less competitive abroad and erodes companies’ overseas profits when repatriated.
However, the unit has been stable recently after hitting 15-year highs against the dollar, giving some respite to the export sector and easing pressure on the economy.
There is therefore “less urgency” for the BoJ to take further action, Mizuho Securities chief market economist Yasunari Ueno told Dow Jones Newswires.