The Bank of Japan maintained its zero interest rate policy Wednesday while offering a somber assessment of global financial markets, saying close attention is needed “mainly due to concern about the European debt problem.”
“There remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem” and the momentum toward recovery in the U.S. economy, the central bank said in a statement following a two-day meeting of its Policy Board.
“Careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations,” the BOJ said.
The ultralow interest rate, maintained by a unanimous vote, will leave the key short-term interest rate at zero to 0.1 percent. The policymakers also agreed to leave unchanged the bank’s credit and asset-purchasing program at ¥70 trillion.
The BOJ’s inaction came despite growing concerns in Europe over the new elections in Greece that have led to further appreciation of the yen and falls in Tokyo share prices.
The situation in Europe “is a risk that needs to be watched most closely,” BOJ Gov. Masaaki Shirakawa said during a news conference after the policy meeting, adding that eurozone members must work on the twin tasks of strengthening economic growth and restoring fiscal balance.
However, he wouldn’t speculate or comment about the possibility of Greece leaving the eurozone or how that would impact Japan, only repeating his hope that Europe’s leaders will work closely to stabilize the situation.
Also, Fitch Ratings on Tuesday cut Japan’s long-term foreign currency rating to A-plus from AA with a negative outlook. But the BOJ had been widely expected to hold off further easing for a later time in case the crisis in Europe deepens.
It also boosted the size of its asset purchase program by ¥5 trillion last month to “better ensure the return of Japan’s economy to a sustainable growth path with price stability.”
Touching on the outlook for the domestic economy, the BOJ said Wednesday it “has been increasingly evident that Japan’s economy is shifting toward a pickup phase, although its economic activity has remained more or less flat.”
Public investment, housing investment and private consumption have been increasing, the BOJ pointed out. The economy should return to a moderate recovery path as reconstruction-related demand strengthens and the pace of recovery in overseas economies picks up, it said.
Regarding the uncertainty in Europe and the domestic challenge of overcoming deflation, the bank said it is dedicated to pursuing policies in an appropriate manner.