Thursday, Nov. 17, 2011

By JUN HONGO

The Bank of Japan Policy Board said Wednesday it will maintain its virtually zero interest rate policy while putting off additional monetary easing to cope with the impact of Europe's debt crisis and the yen's sharp rise.

Despite agreeing by a unanimous vote to leave its key short-term interest rate at zero to 0.1 percent, the central bank acknowledged that the fallout from fragile economies overseas is clearly being felt on domestic soil.

"Japan's economic activity has continued picking up, but at a more moderate pace mainly due to effects of a slowdown in overseas economies," the BOJ said in a statement following the two-day meeting of its board members.

While noting that exports and production have recovered from the March 11 disaster and private consumption has remained firm, the central bank said much uncertainty lies ahead for the economy.

Europe's sovereign debt issues could hurt the global economy through the financial markets, resulting in weaker growth worldwide, the bank said. The U.S. economy is also in danger of a prolonged slowdown due to the effects of balance-sheet adjustments, the BOJ added.

Although agreements to avoid a financial crisis have been reached between the EU leaders, "unfortunately it hasn't been enough to wipe away concerns" over their debt issues, BOJ Gov. Masaaki Shirakawa said following the meeting.

The domestic economy is also hampered by the adverse effects of the yen's appreciation as well as the flooding in Thailand, the BOJ said.

"Attention should continue to be paid on how the Japanese economy will be affected by such uncertainties over financial and economic developments overseas," Shirakawa said.

All nine board members agreed to leave unchanged the central bank's credit and asset-purchasing program, which was boosted last month by ¥5 trillion, to a total of ¥55 trillion.

The BOJ has been purchasing government and corporate bonds to increase money market liquidity.

The central bank "is steadily implementing the program mainly through the purchase of financial assets," the BOJ said, adding that it is committed to maintaining the virtually zero-interest rate policy until price stability is in sight.

On Oct. 31, the BOJ, acting as an agency of the Finance Ministry, stepped into the foreign exchange market to weaken the yen, selling the currency for dollars in Japan's second intervention in three months.

A record ¥7.5 trillion to ¥8 trillion was spent in the unilateral action, according to market observers.

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