Thursday, Oct. 15, 2009

By TAKAHIRO FUKADA

Staff writer

The Bank of Japan on Wednesday kept its key interest rate at 0.1 percent as expected but refrained from ending corporate support measures because of the high downside risks to the economy.

But the BOJ also upgraded its assessment of the economy, noting that public works spending is on the rise and exports and production are picking up.

"Japan's economy has started to pick up," the BOJ said in a statement, improving its assessment from last month, when it said conditions were "showing signs of recovery."

Business sentiment, especially at large manufacturers, is improving, and the decline in fixed investment is slowing, the BOJ said, adding that the economy will recover through fiscal 2010.

Hiromichi Shirakawa, chief economist at Credit Suisse, agreed with the BOJ's assessment because exports and production are turning upward. The two Shirakawas are not related.

Nevertheless, the BOJ took no action on its corporate support measures despite reports it might terminate them as early as Wednesday. The credit-support measures, which include purchasing corporate bonds and commercial paper from financial institutions and providing them unlimited loans against eligible collateral, will expire at the end of the year.

At a news conference later in the day, BOJ Gov. Masaaki Shirakawa said the bank will decide what to do about the unorthodox program at the BOJ Policy Board meeting later this month at the earliest.

"We came to the conclusion that it is appropriate for us to decide on various temporary measures at the appropriate time after the next meeting, following a comprehensive review of its respective impacts and needs," Shirakawa said.

Shirakawa, the analyst at Credit Suisse, believes the measures should stay in place at least through next March.

If not, the economy might dip again in the January-March quarter as exports decline, the supplementary budget shrinks, and consumption falls due to cuts in winter bonuses at many companies, the analyst said.

"There is no need (for the BOJ) to dare to end those measures at the end of the year," he said.

Saori Tsuiki, an economist at Mitsubishi Research Institute, also supported extending the support measures.

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