MW: Bank of Japan cuts economic outlook, holds rates
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — The Bank of Japan cut its economic outlook Wednesday, citing a slowdown in overseas economies and the effects of a stronger yen, while keeping its benchmark interest-rate target unchanged as expected.
“Japan’s economic activity has continued picking up, but at a more moderate pace,” the Bank of Japan said in a statement accompanying the policy decision.
The large-scale flooding in Thailand and its dampening effect on Japanese industry were also cited as a factor in the lowered forecast.
The policy board also voted unanimously to hold its overnight target rate at 0 to 0.1%, offering little surprise after indicating earlier this year that rates would remain on hold for some time to come.
Exports were increasing, though at moderating pace, as inventories of Japanese goods were rebuilt after disruption to industry in the aftermath of the devastating earthquake and tsunami in March of this year, the central bank said.
Inflation is almost non existent, with annual gains in consumer prices trending around 0%, when stripping out volatile fresh-food prices, it said.
“Japan’s economy will face an adverse effect from the slowdown in overseas economies and the appreciation of the yen, as well as from the flooding in Thailand. After that, the economy is expected to return to a moderate recovery path,” the Bank of Japan said.
The central bank acknowledged the severity of the euro-zone sovereign-debt crisis, saying the economic chills that arise are unlikely to remain within Europe and could engulf the global economy, resulting in weaker growth.
The statement also warned of the possibility of a prolonged slowdown in the U.S. economy, owing to “effects balance sheet repair.”
Addition risks include those faced by commodity economies and emerging markets, the Bank of Japan said, adding that many appeared to be walking a fine line in keeping growth ticking along while maintaining price stability.
The Japanese yen had little reaction to the decision, with the U.S. dollar USDJPY -0.02% buying ÂĄ77.03, barely changed from ÂĄ77.08 in late North American trade Tuesday.
Japanese stocks maintained their losses following the policy statement, with the Nikkei Stock Average JP:NIK -0.70% off 0.7% in afternoon trades.
