On business -
Written by Administrator
Tuesday, 21 December 2010 06:12
AsiaViews, Edition: 13/V/April/2008
With business confidence slumping to its lowest level in five years, the Bank of Japan will refrain from raising the key short-term interest rate, central bank sources said.
In a turnaround from its past policy, the BOJ's Policy Board meeting April 30 will likely agree to drop references to its desire to increase the interest rate, currently at 0.5 percent, from the bank's semiannual economic outlook report.
In the report, the central bank will also likely lower its forecast for economic growth in fiscal 2008 to around 1.5 percent, compared with 2.1 percent forecast in the previous report released last October.
Opposition to an interest rate hike in the near future increased among BOJ officials following stagnant business earnings and soaring prices for raw materials and oil, the sources said.
The board members are also concerned about the turmoil in financial markets due to the U.S. subprime mortgage crisis, the sources said.
Since April 2006, the BOJ's economic outlook reports have said the central bank would "adjust'' the short-term interest rate. The expression has been interpreted as the bank's desire to increase the rate.
In its previous outlook report, the central bank clearly stated that interest rates would rise. But the "adjust" clause and the sentence will likely be dropped in the upcoming report, the sources said.
The outlook reports are intended to send a message to the market on how the BOJ assesses market sentiments and consumer prices. The nine-member board's forecasts for economic growth and price trends are for the following one to two years.
The reports also reveal the BOJ's basic policies for the period.
In March 2006, the central bank announced an end to its quantative-easing policy and gradually increased the short-term interest rate to 0.5 percent by February 2007. Even after the subprime crisis erupted in the United States, the BOJ has sought a chance to further raise the rate.
However, the bank's latest Tankan survey of corporate sentiment released on April 1 showed that the diffusion index for leading manufacturers, a key gauge of business confidence among Japanese companies, plunged to its lowest level since December 2003 amid soaring raw material prices and the rising yen.
Companies of all sizes and in all industries said they will reduce investment in fiscal 2008 and projected declines in pretax profits for fiscal 2007.
By: Hitoki Nakagawa
The Asahi Shimbun 22 April 2008
Last Updated ( Tuesday, 21 December 2010 06:12 )