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Thursday, Sept. 20, 2007

BOJ leaves key interest rate unchanged

Decision heavily influenced by Fed's rate cut, global market uncertainties


Staff writer

The Bank of Japan Policy Board decided Wednesday to keep its key interest rate at 0.5 percent, after the U.S. Federal Reserve cut its benchmark interest rate the day before.

News photo
Members of the Bank of Japan's Policy Board meet Wednesday morning at the central bank before deciding to keep its key interest rate unchanged. KYODO PHOTO

The BOJ's decision had been widely predicted because it would be hard for the BOJ to tighten credit at a time when the Fed is injecting funds into the banking system, market watchers said.

The Policy Board voted 8-1 at the end of its two-day meeting to maintain the rate. For the third consecutive month, Atsushi Mizuno was the only board member voting to raise the overnight borrowing rate.

"There is a growing possibility that the U.S. economy is facing a downside risk, and the uncertainties of the global economy are increasing," BOJ Gov. Toshihiko Fukui said after the meeting.

Because the economies of other countries mutually affect each other, Fukui said, the central bank will decide on its monetary policy after taking other economies into careful consideration.

But as the U.S. mortgage crisis casts a cloud over the global economy, market watchers say the BOJ will be forced to postpone its next interest rate hike to a date later than initially predicted.

Ryutaro Kono, chief economist at BNP Paribas in Tokyo, said in a statement that the BOJ may shelve a rate hike until the third quarter next year.

"The next rate hike is not likely to take place until (the BOJ) makes sure how the hard-landing of the U.S. economy and the Fed's rate cut, which will lead to a stronger yen, will affect the Japanese economy," Kono said.

Kono said the BOJ will not be able to raise the rate until a vast majority of market participants believe the Fed will no longer slash its interest rate.

"Another rate hike would be difficult before Gov. Fukui's tenure ends in March," he said.



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