• The Associated Press

  • SHARE

The Bank of Japan voted to keep interest rates near zero, holding off on further measures to tackle a strong yen that is undermining the country’s fragile economic recovery.

In a unanimous decision, the nine-member BOJ Policy Board decided Tuesday to maintain the key interest rate at 0.1 percent, as widely expected. The BOJ has not changed the overnight call rate since December 2008.

The BOJ maintained its assessment of the economy, saying it shows “further signs of a moderate recovery” but acknowledged growing head winds.

“Against the backdrop of increased uncertainty about the future, especially for the U.S. economy, and associated instability in the foreign exchange and stock markets, attention should be paid to downside risks to Japan’s economy,” it said in a statement.

The BOJ’s latest decision to do nothing follows an emergency meeting last week, when it expanded a low-interest credit program to help contain the impact of the strong yen.

The bank has been under increasing political pressure to act on the currency. The export-driven economy is facing an increasingly uncertain outlook, while the government is hamstrung by massive debt. Sustained strength in the yen is toxic to vital exporters such as Toyota Motor Corp. and Sony Corp., eroding their international profits and making their goods less competitive abroad.

The move last week, however, generally underwhelmed markets and analysts, who criticized the loan expansion as too modest.

In its defense, the BOJ said it has been “striving to pursue powerful monetary easing” and pledged to maintain an extremely easy financial environment.

“The bank will carefully examine the outlook for economic activity and prices, and, if judged necessary, take policy actions in a timely and appropriate manner,” it said, reiterating BOJ Gov. Masaaki Shirakawa’s comments last week.

The direction of the economy may also hinge on the Sept. 14 presidential election for the ruling Democratic Party of Japan.

Three months after taking office, Prime Minister Naoto Kan faces a fierce challenge from veteran DPJ don Ichiro Ozawa for the presidency.

Kan has not called for currency intervention. Ozawa has said he would intervene in foreign exchange markets.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.

SUBSCRIBE NOW