MW: Bank of Japan leaves policy unchanged as expected
By Lisa Twaronite, MarketWatch
TOKYO (MarketWatch) -- The Bank of Japan Friday unanimously voted to keep its overnight call-rate target at 0.1% as widely expected, left its overall assessment of Japan's economy unchanged, and emphasized the need to pull Japan out of deflation - perhaps laying the groundwork for more easing ahead.
The bank has not made an interest rate change in 12 months, since December 2008, when it cut its key rate from 0.3% to support the economy during the global financial crisis.
At an unscheduled policy board meeting on Dec. 1, the central bank announced a new 10-trillion-yen program to lend funds at its overnight call-rate target of 0.1%, accepting a wide range of collateral. Read more on BOJ's special easing steps.
The BOJ repeated its pledge Friday to cooperate with the government to do all it can to help Japan out of deflation, which the bank expects to last for three fiscal years.
"We believe it is a very important task for us to pull Japan out of deflation and return the country's economy to sustained growth with price stability," the BOJ said in a statement.
On Monday, the BOJ's quarterly tankan survey sent mixed signals on the outlook for the fragile economic recovery, showing better-than-expected sentiment but deteriorating capital-outlay expectations among Japanese companies. See full story on BOJ tankan.
Last week, the latest Cabinet Office data showed Japan's economy grew just 0.3% in real terms in the July-September period from the previous quarter -- far less than the on-quarter rise of 1.2% in the preliminary data. Read more on Japan's revised GDP data.
The yen has recently traded close to 14-year highs against the U.S. dollar, adding more deflationary pressure as a weaker currency reduces the price of imported goods. It also makes Japanese exports more expensive and less competitive in overseas markets, which threatens to undermine the recovery.
Against the backdrop of these conditions, many strategists and investors here believe the BOJ will have no choice but to take additional easing steps.
By contrast, other developed nations are looking toward ending their easing. On Wednesday, the U.S. Federal Reserve said the U.S. economy was on the mend, though not yet healthy enough to warrant higher rates. But it emphasized that it will end most of its alphabet soup of emergency loan programs in the first quarter of 2010. Read The Fed.
