TOKYO (Thomson Financial) - The Bank of Japan kept its overnight call rate target unchanged at 0.5 percent for the 14th straight meeting on Friday, as widely expected.
This gives the Japanese central bank time to further assess the impact of the credit crisis on financial markets and whether weakness in the US housing market will derail growth in the world's largest economy following aggressive rate cuts there.
The US is one of Japan's most important trading partners.
The BoJ also needs to ascertain if the Japanese economy will be able to maintain its recovery trend despite emerging uncertainty about domestic private demand.
The BoJ said all nine members of its policy board voted unanimously to leave the rate unchanged.
The central bank's overnight call rate target, or the minimum interest commercial banks charge each other for short-term needs, has remained at 0.5 percent since February last year, when the bank raised it from 0.25 percent.
After the decision was announced, the yen was trading at 107.85 against the dollar, little changed from its level prior to the announcement.
Financial markets also barely reacted to the widely expected BoJ decision. The Nikkei 225 index was last down 235.32 points or 1.7 percent at 13,391.13, slightly lower than the morning session's closing level of 13,423.93.
The yield on the benchmark 10-year bond was at 1.445 percent, unchanged from the morning session's closing level.
Eyes on Fukui
Investor attention is now on what BoJ governor Toshihiko Fukui will say at a news conference at 3.30 pm (0630 GMT), amid speculation that the BoJ may consider lowering interest rates given increased downside risks for the US economy, continued financial market turmoil and emerging uncertainty about the Japanese economy.
Fukui has so far been an advocate of adjusting interest rates, citing the risk of a misallocation of resources in the future if interest rates stay at levels that do not reflect economic fundamentals.
But like other central bankers, Fukui is now putting more emphasis on analyzing the situation carefully, saying that the BoJ will assess the feasibility of its standard economic scenario as well as the upside and downside risks, and that it will make the appropriate policy decisions at the appropriate time.
The G7 finance ministers and central bankers, meeting in Tokyo on Saturday, urged collective action among member countries to deal with the expected slowdown of the global economy and the turmoil in financial markets.
There was no mention, however, of specific measures member countries should take.
According to the the overnight index swap rate, which reflects the market's view on Japanese interest rates, expectations for a cut of 25 basis points at the Bank of Japan's August meeting now stand at 50 percent.
Anxiety remains
For its part, Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering its key interest rate, as needed, to shore things up.
The Fed has cut its benchmark rate by a total of 225 basis points since September last year in a bid to avoid systemic risk and avert a recession. But these measures, including President Bush's 150 billion-dollar-stimulus plan, have failed to fully remove market anxiety about the worsening credit crunch.
"The tightening lending stance by financial institutions can easily undo the impact of the rate cuts, while the reverse wealth impact, stemming from falling share prices and declining home prices, is likely to drag consumer spending and corporate investments," Tokai Tokyo Securities chief economist Mitsuru Saito said.
"But when it comes to monetary policy decisions, unless the credit crunch actually threatens the banking system in Japan, the BoJ is not likely to follow the Fed's suit," Saito said.
"What the BoJ can do is to watch the situation carefully," he said.
The recent rebound of the Nikkei 225 index and the dollar against the yen may also give the Bank of Japan more time to keep things on hold. The Nikkei 225 index hit 12,573.05 on January 22, its weakest level since September 8, 2005, when the benchmark index closed at 12,533.89.
The yen rose to as high as 104.94 against the US dollar on January 23, its highest level since May 2005 when the Japanese currency hit 104.92.
For the BoJ, uncertainty about the Japanese economy is also a worrying factor.
"Although yesterday's gross domestic product data confirmed that the Japanese economy did well in the October-December quarter, an expected slowdown of exports due to a moderation of the US economy may increase downside risks for the Japanese economy," Mitsubishi UFJ Securities senior economist Tatsushi Shikano said.
"If positive flow among exports, production and capital investments were to collapse, the Japanese economy may register a contraction, thereby forcing the BoJ to lower interest rates," he said.
The Cabinet Office said Thursday Japan's GDP rose 0.9 percent in real terms in the fourth quarter, or at an annualized rate of 3.7 percent, with net exports adding 0.4 percentage points to the growth and capital investments injecting an additional 0.5 percentage point.
(1 US dollar = 106.33 yen)
Tidak ada komentar:
Posting Komentar