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Japan: Rates unchanged, slightly softer view
Tue, Aug 19 2008, 09:48 GMT
by Flemming J. Nielsen
The Bank of Japan (BoJ), as expected, left its leading O/N target rate unchanged at 0.5% in a unanimous decision at today's monetary meeting. BoJ's "View of the Economy" and the press briefing was slightly soft but overall there were only minor changes compared to the July view.
Looking more closely at the details, there were only minor changes in the BoJ "View of the Economy", now released as part of the policy statement. The August statement "economic growth has been sluggish" has replaced "economic growth is slowing further" (see page 2 for policy statement). In addition BoJ believes "growth will remain sluggish for the time being" but eventually return to a moderate growth path. At the press briefing Board Governor Shirakawa stated the economic recovery may be delayed, but a major deterioration in the economy is unlikely. Although headline inflation will probably exceed BoJ's 0%-2% price stability range in July, the bank continues to play down inflations risks. At the press briefing Shirakawa said he sees no signs of a second round impact from the recent spike in inflation.
Overall the risk assessment has been left unchanged. BoJ sees downside risk to growth from both the global economy and the impact on domestic demand from higher energy and commodity prices. That said, there are signs of increasing concern about the global economy. For the first time it directly mentions weak exports as part of the reason for the current weakness in growth. On the other hand BoJ find some comfort in the recent decline in crude oil and commodity prices. Commodity prices leveling off is now explicitly mentioned as a reason for a return to a moderate growth path.
Published on Tue, Aug 19 2008, 09:52 GMT
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