At the Monetary Policy Meeting held today, the Bank of Japan ( BOJ) decided, by a 6-3 majority vote, to retain the uncollateralized overnight call rate to remain at around 0.25 percent.
Governor Toshihiko Fukui said that the slowdown is temporary and the bank anticipates “gradual” rate increases. ( Fukui used the term “gradual” in July, when the central bank raised rates for the first time in almost six years and as Japan moved toward the end of a near decade-long battle with deflation. The BOJ has held borrowing costs steady since then).
BOJ’s view :
BOJ expects that Japan’s economy would continue expanding moderately ( Reality - GDP has dropped gradually since the last rate increase - please read the previous post )
Further the Domestic corporate goods prices are expected to be somewhat weak or stay flat in the immediate future, due to the drop in international commodity prices. The year-on-year rate of change in consumer prices is projected to continue to follow a positive trend, as the output gap continues to be positive.
BOJ accepts that - Developments in Japan’s economy have so far deviated slightly downward - but site the reason that this was mainly due to - weaker-than-expected private consumption.
Conclude
Again - its the BOJ’s fear of drop in private consumption that seems to be the guiding their Monetary Policy ( and not inflation).
The currency has fallen against the dollar every day this week ( from 118.50 to 121 ) as government officials urged the central bank to support economic growth after consumer spending slowed.
In the coming weeks there will be some pressure for the Yen to strenghten from the current levels - as the market discounts - possible expectancies of rate increases for the next BOJ meeting
The next meeting is scheduled for February 20th 2007