Published: December 21, 2010
TOKYO (Reuters) — The Bank of Japan kept monetary policy unchanged on Tuesday, but noted weakening factory output and business sentiment in what markets saw as an assurance that it was aware of risks to growth that could require more easing.
The governor of the Bank of Japan, Masaaki Shirakawa, apparently seeking to soothe jittery bond markets, said Tuesday that he would carefully examine how increases in Japanese yields could affect the economy, for example by causing losses on commercial banks’ huge debt holdings.
But he stressed that Japanese bond yields were not rising as much as long-term rates in the Unites States and Europe and were merely taking a cue from American Treasuries.
“In Japan, long-term interest rates have not risen as rapidly as in developed countries in the West,” Mr. Shirakawa told a news conference.
The central bank’s decision to keep its rates at a range of zero to 0.1 percent had been widely anticipated.
With rising share prices and the yen’s retreat from a 15-year high that was reached last month, analysts saw little reason for the bank to act again after easing policy just two months ago. At its October meeting, the central bank promised to keep interest rates effectively at zero until the end of deflation was in sight. It also set up a 5 trillion yen ($60 billion) fund to buy assets ranging from government bonds to corporate debt.
Bank policy makers have also said that increasing the size of the fund would be a clear option if the anticipated slowdown proved deeper than expected.
Mr. Shirakawa stressed that the latest easing steps had been effective in pushing down longer-term money market rates, and stuck to his view that Japan’s economy would resume a moderate recovery early next year after a brief lull.
The bank maintained its general view that Japan, the world’s third-largest economy after the United States and China, was showing signs of moderate recovery, but toned down its language on output, saying it had declined slightly and was not “moving sideways.” The bank also warned that business sentiment had been “somewhat weak,” signaling that it saw its latest Tankan survey, an economic survey of Japanese businesses, as offering negative signals for the economy.
Recent increases in Japanese long-term interest rates have created a headache for the central bank, which aims to push down one- to two-year yields with the new asset-buying scheme.