The Bank of Japan on Tuesday revised downward its economic growth forecasts for fiscal 2011 from 0.3 to minus 0.4 percent, citing the impact of Europe’s sovereign debt issues and the yen’s appreciation.
At its two-day Policy Board meeting, the BOJ also lowered its growth projection for fiscal 2012 from 2.2 percent to 2.0 percent and members unanimously agreed to maintain the central bank’s zero interest rate policy.
“Overall, there still is strong uncertainty remaining” over Europe, BOJ Gov. Masaaki Shirakawa said during a news conference following the Policy Board meeting. “As I have stated on previous occasions, (Europe’s sovereign debt crisis) remains the largest risk factor” for Japan’s economy.
While saying that Japan’s economy will be on a recovery path in 2012, Shirakawa acknowledged that there are some domestic risks, including a possible electricity shortage in the summer, which should not be overlooked.
“We must watch those uncertainties closely,” he said.
In October, real gross domestic product for fiscal 2011 was projected to grow 0.3 percent. But with Japan’s efforts to recover from the March 11 disasters overshadowed by the ongoing financial crisis in Europe and other issues, the central bank was forced to downgrade its predictions.
The BOJ noted that Europe’s sovereign debt problem could result in a global economic downturn, particularly through its impact on global financial markets. Citing other economic risks, the bank added it remains uncertain whether emerging economies can grow while simultaneously keeping prices stable.
The ultralow interest rate, maintained by a unanimous vote, will leave the key short-term interest rate at zero to 0.1 percent. The board members also agreed to leave unchanged the BOJ’s credit and asset-purchasing program at ¥55 trillion.
On the domestic front, the BOJ said business fixed investment has been “on a moderate increasing trend” while noting that private consumption has remained firm. The economy should see a moderate recovery in the first half of fiscal 2012 as overseas economies pick up, it said.
The BOJ said it will steadily implement the purchase of financial assets through its ¥55 trillion fund to increase market liquidity.
The virtually zero interest rate policy will continue until price stability is in sight, it added.