The Bank of Japan kept interest rates on hold at the first meeting after slashing its growth estimate and shelving a two-year policy of seeking higher borrowing costs.
Governor Masaaki Shirakawa and his six colleagues unanimously voted to leave the overnight lending rate at 0.5 percent in the quickest decision in three years, the central bank said in Tokyo. The rate is the lowest among major economies.
Shirakawa said the world's second-largest economy is clearly slowing and the central bank will implement policy in a flexible manner. Board members are focusing on the risk that record oil and raw-materials costs will cause companies and consumers to pare spending, he told reporters.
"Shirakawa's comments suggest the BOJ probably won't be able to either raise or cut rates for a while,'' said Koji Shimamoto, chief strategist at BNP Paribas in Tokyo. "Global central bankers, including the BOJ, are concerned about slower growth at the same time of inflation risk.''
The yield on Japan's 10-year bond fell 1.5 basis points to 1.645 percent as of 6:03 p.m. in Tokyo. Today's meeting ended at noon, the earliest conclusion since Feb. 17, 2005.
"Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices,'' the central bank said, keeping its assessment of the economy unchanged even after a report last week showed gross domestic product expanded 3.3 percent last quarter, the fastest pace in a year.
Exports, Production
Exports rose at the slowest pace in almost three years in March. Production fell the most in at least five years. Machine orders, an indicator of business investment in the next three to six months, also declined, and are forecast to drop this quarter.
Costlier oil and raw materials are squeezing profits and eroding household incomes. Japanese companies' pretax profits will decline 5 percent in the year ending March 2009, ending a seven-year streak of growth, Shinko Research Institute data showed this week.
"Corporate profits have been leveling off, albeit at a high level, and the pace of increase in fixed investment has become slower,'' the bank said.
The Bank of Japan dropped a call for gradual rate increases in its twice-yearly outlook on April 30 and cut its estimate for this fiscal year's expansion to 1.5 percent from 2.1 percent. It said consumer prices excluding fresh food will climb 1.1 percent, raising its inflation projection from 0.4 percent.
Finance Minister Fukushiro Nukaga said today that rising oil and food prices are making monetary and macroeconomic policies more difficult.
Global Inflation Risks
The risk of quicker inflation is rising globally as crude oil prices soar, Shirakawa said. Australia's central bank said it spent considerable time discussing the case for a rate increase this month, minutes today showed, as costs of fuel and food drove consumer-price gains to a 17-year high.
Shirakawa said the Bank of Japan needs to watch how consumers' rising inflation expectations affect the way companies set prices. Core consumer prices rose 1.2 percent in March from a year earlier, the fastest pace in a decade.
Some 86.2 percent of households predict prices will rise a year from now, the second-highest proportion on record, a government report showed last week.
"Bank of Japan policy makers are talking about two risks. One is higher inflation,'' said Takashi Omori, chief economist at UBS AG in Tokyo. "The other is the risk of a recession because of higher energy and food prices.''
The detailed version of the outlook report on May 1 said Japan will avoid a recession because of relatively high growth in overseas economies, low rates, and companies having already trimmed inventories, production capacity and workers.
No Change This Year
Only two of 31 economists who gave predictions through December said the bank will raise rates this year. The remaining 29 expect no change.
Before dropping language in April that said the bank would pursue higher interest rates, policy makers had for two years repeated that borrowing costs need to rise gradually as long as the economy keeps growing and prices remain stable. The report retained a warning that keeping rates low could cause excessive investment and hamper growth in the long run.
"Policy makers are currently paying more attention to the downside risks,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. "We expect a 25-basis point hike in the third quarter of 2009 at the earliest.''
Governor Masaaki Shirakawa and his six colleagues unanimously voted to leave the overnight lending rate at 0.5 percent in the quickest decision in three years, the central bank said in Tokyo. The rate is the lowest among major economies.
Shirakawa said the world's second-largest economy is clearly slowing and the central bank will implement policy in a flexible manner. Board members are focusing on the risk that record oil and raw-materials costs will cause companies and consumers to pare spending, he told reporters.
"Shirakawa's comments suggest the BOJ probably won't be able to either raise or cut rates for a while,'' said Koji Shimamoto, chief strategist at BNP Paribas in Tokyo. "Global central bankers, including the BOJ, are concerned about slower growth at the same time of inflation risk.''
The yield on Japan's 10-year bond fell 1.5 basis points to 1.645 percent as of 6:03 p.m. in Tokyo. Today's meeting ended at noon, the earliest conclusion since Feb. 17, 2005.
"Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices,'' the central bank said, keeping its assessment of the economy unchanged even after a report last week showed gross domestic product expanded 3.3 percent last quarter, the fastest pace in a year.
Exports, Production
Exports rose at the slowest pace in almost three years in March. Production fell the most in at least five years. Machine orders, an indicator of business investment in the next three to six months, also declined, and are forecast to drop this quarter.
Costlier oil and raw materials are squeezing profits and eroding household incomes. Japanese companies' pretax profits will decline 5 percent in the year ending March 2009, ending a seven-year streak of growth, Shinko Research Institute data showed this week.
"Corporate profits have been leveling off, albeit at a high level, and the pace of increase in fixed investment has become slower,'' the bank said.
The Bank of Japan dropped a call for gradual rate increases in its twice-yearly outlook on April 30 and cut its estimate for this fiscal year's expansion to 1.5 percent from 2.1 percent. It said consumer prices excluding fresh food will climb 1.1 percent, raising its inflation projection from 0.4 percent.
Finance Minister Fukushiro Nukaga said today that rising oil and food prices are making monetary and macroeconomic policies more difficult.
Global Inflation Risks
The risk of quicker inflation is rising globally as crude oil prices soar, Shirakawa said. Australia's central bank said it spent considerable time discussing the case for a rate increase this month, minutes today showed, as costs of fuel and food drove consumer-price gains to a 17-year high.
Shirakawa said the Bank of Japan needs to watch how consumers' rising inflation expectations affect the way companies set prices. Core consumer prices rose 1.2 percent in March from a year earlier, the fastest pace in a decade.
Some 86.2 percent of households predict prices will rise a year from now, the second-highest proportion on record, a government report showed last week.
"Bank of Japan policy makers are talking about two risks. One is higher inflation,'' said Takashi Omori, chief economist at UBS AG in Tokyo. "The other is the risk of a recession because of higher energy and food prices.''
The detailed version of the outlook report on May 1 said Japan will avoid a recession because of relatively high growth in overseas economies, low rates, and companies having already trimmed inventories, production capacity and workers.
No Change This Year
Only two of 31 economists who gave predictions through December said the bank will raise rates this year. The remaining 29 expect no change.
Before dropping language in April that said the bank would pursue higher interest rates, policy makers had for two years repeated that borrowing costs need to rise gradually as long as the economy keeps growing and prices remain stable. The report retained a warning that keeping rates low could cause excessive investment and hamper growth in the long run.
"Policy makers are currently paying more attention to the downside risks,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. "We expect a 25-basis point hike in the third quarter of 2009 at the earliest.''
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1 comment:
Slow growth indeed.
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