Bank of Japan upgrades economic view, holds rates

Wednesday, 16 February 2011 00:01 - - {{hitsCtrl.values.hits}}

TOKYO, (AFP) - The Bank of Japan on Tuesday upgraded its view of the economy for the first time in nine months on accelerating global growth but kept its easy monetary policy in place due to persistent deflation.

The central bank’s board voted unanimously at the end of a two-day meeting to keep its key rate unchanged between zero and 0.1 percent.

The bank’s decision comes as it weighs the impact of a monetary easing programme that includes a five trillion yen ($60 billion) asset purchase scheme to boost liquidity.

“Japan’s economy is gradually emerging from the current deceleration phase,” the BoJ said in a statement, noting that Japanese exports and production are picking up thanks to global growth led by emerging markets.

The wording reflected the central bank’s more upbeat view compared to previous references to a “pausing” recovery and marked the first time it has raised its assessment since May.

“As the growth rate of the global economy has started increasing again led by emerging and commodity-exporting economies, Japan’s exports and production are showing signs of resuming an uptrend,” the statement said.

Some analysts warn that Japan’s reliance on external trade leaves it exposed to the strength of the yen, which reduces the competitiveness of its exports while making imports cheaper, encouraging deflation.

Japan’s real gross domestic product slipped by an annualised 1.1 percent in the October-December quarter as the expiration of auto subsidies hit car sales, a new tobacco tax sapped cigarette demand and a surging yen hurt exports.

But the contraction was smaller than expected, and there are hopes that the economy will pick up again in the current quarter on stronger export growth amid demand from key partners such as China, which overtook Japan in 2010 to become the world’s second-biggest economy.

“Although the latest GDP data showed a contraction, monthly data such as exports and production have been positive,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute.

“The BoJ upgrade is a fair reflection on the current status of the economy.”