By Mayumi Otsuma
April 10 (Bloomberg) -- The Bank of Japan kept interest rates unchanged for a second month after consumer prices fell and recent data signaled U.S. economic growth may slow.
Governor Toshihiko Fukui and his policy board colleagues voted unanimously to hold the key overnight lending rate at 0.5 percent, the lowest among major economies, the bank said in a statement today in Tokyo. The decision was expected by all 49 economists surveyed by Bloomberg News.
Fukui later told reporters that the U.S. economy will achieve a soft landing and Japan's consumer prices will rise in the long run after hovering around zero percent in coming months. Confidence among Japan's largest manufacturers slipped from a two-year high on concern a U.S. slowdown may hurt exports, the central bank's quarterly Tankan business survey showed last week.
``There's still a pretty big chance for a rate hike later this year if the central bank can confirm Japan's growth is supported by demand at home, even if the U.S. economy deteriorates,'' said Ryutaro Kono, chief economist at BNP Paribas Securities Japan Ltd. ``We expect the bank to act in the fourth quarter.''
The yen traded at 159.74 per euro at 5:16 p.m. in Tokyo, after falling to a record 159.90. Japan's currency was at 119.15 against the dollar compared with 119.03 before the policy decision was announced.
Moderate Expansion
The central bank raised the key rate from near zero last July, its first increase in six years, and doubled it in February. Fukui said the bank is watching the effect of the February increase on the Japanese economy and reiterated that the timing of further rate adjustments can't be predetermined.
Of 16 Tokyo-based economists surveyed separately, seven said the bank will probably raise rates in August or September, and five said it will wait until the fourth quarter. Only one predicted an increase as early as July and three said the bank will pause until next year.
The bank said Japan's economy is ``expanding moderately,'' led by exports and business investment, leaving its monthly economic assessment unchanged today. The Tankan survey showed large manufacturers plan to boost spending by 2.5 percent in the year that began April 1, more than economists expected.
``Even with U.S. growth decelerating, we expect the Bank of Japan to raise rates in August or September, given the brisk capital investment plans shown in the Tankan,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. He said demand from Asia is helping to ease the effect of a U.S. slowdown.
Slower U.S. Growth
Growth in the U.S. will slow to 2.1 percent this year from 3.4 percent in 2006, the World Bank predicted in its semi-annual report last week. East Asia, excluding Japan and the Indian subcontinent, will expand 7.3 percent this year, down from 8.1 percent, the Washington-based lender said.
``The U.S. slowdown is continuing, but we expect the economy's growth rate to return to potential after an adjustment so a soft landing remains likely,'' Fukui said. ``We need to watch both downside and inflation risks for the U.S. economy.''
Japan's core consumer prices, which exclude fresh food, declined 0.1 percent in February from a year earlier, the first drop since last April. The likelihood prices will keep falling will make it harder for the bank to raise rates in the first half of 2007, analysts say.
``There is very little evidence of the upward pressure on prices that we would normally expect to see at this advanced stage of the economic cycle,'' said Ben Eldred, a Japan strategist at Daiwa Securities Group Inc. in London. ``The chance of a rate rise over summer now appears close to zero.''
Worst Is Over
Some economists said there's a chance the bank will raise rates before a July Upper House election should it become confident that the U.S. economy will pick up later in the year.
``The worst of the downturn is over for the U.S. economy and we can anticipate foreign demand for Japanese exports to gather steam later this year,'' said Hiromichi Shirakawa, a former BOJ official and now chief economist at Credit Suisse in Tokyo. The Bank of Japan may raise rates as early as May or June, he said.
Demand may be picking up at home, too. Spending among Japanese households rose in the first two months of 2007 after declining every month last year. Economic and Fiscal Policy Minister Hiroko Ota told reporters today that consumption is showing ``brighter signs,'' though wages need to increase more.
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
Last Updated: April 10, 2007 04:19 EDT
No comments:
Post a Comment