The Bank of Japan’s move and a government report last week point to the rapid deterioration of Japan’s economy. The central bank cut the target rate for unsecured overnight call money from 0.3 percent to 0.1 percent. This followed a cut on Oct. 31 — which was the first in roughly 7 1/2 years — from 0.5 percent to 0.3 percent.
The global economic slowdown triggered by the financial meltdown in the United States is walloping Japan’s manufacturing industry, represented by carmakers and electronics makers. Sales and profits are falling, and they are dismissing workers.
Toyota Motor Corp. is expected to report an unconsolidated operating loss in the current business year through March 2009. Sony Corp. has announced a plan to lay off 16,000 people — 8,000 temporary and 8,000 permanent workers. In its economic outlook, the government reduced the growth of gross domestic product in real terms for fiscal 2009 to zero from the 1.6 percent forecast in July. It also revised the corresponding figure for fiscal 2008 from the 1.3 percent predicted in July to minus 0.8 percent.
The BOJ also also took the emergency step of making temporary outright purchases of corporate commercial paper from financial institutions. Indicating the central bank’s strong determination to stem the economic downturn, BOJ Gov. Masaaki Shirakawa characterized the purchases of commercial paper as one of “the most abnormal of all abnormal measures to be taken by a central bank.” The BOJ will also increase outright purchases of long-term government bonds from ¥1.2 trillion a month to ¥1.4 trillion a month.
The U.S. Federal Reserve’s reduction last week of the federal funds rate to a range of zero to 0.25 percent pushed the BOJ toward cutting the key interest rate. If the BOJ had not cut Japan’s rate, pressure for a higher yen value against the dollar would have remained strong. Although the effect of the BOJ’s decision cannot be immediately measured, the central bank should be ready to take additional steps if necessary.
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