BoJ Leaves Key Rate Unchanged; To End Corporate Debt Purchase By Year End

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Thursday, the Bank of Japan announced its decision to maintain its key interest rate and to end the purchase of commercial paper and corporate bonds at the end of 2009 as scheduled, as it becomes necessary to conform to the changes in financial markets.

The Policy Board, led by Governor Masaaki Shirakawa, unanimously decided to leave the uncollateralized overnight call rate unchanged at 0.1% as expected. The BoJ said it would maintain the extremely accommodative financial environment for some time by holding interest rates at their current low levels.

Also, the board decided to stop outright purchases of commercial papers and corporate bonds at the end of 2009 as the central bank's assessment showed a marked improvement in conditions. The central bank said that the purpose of the purchases to restore market functioning has been achieved. Atsushi Mizuno was the only board member who voted against the expiration of the outright purchases of corporate bonds at the end of 2009.

At the same time, the special funds-supplying operations to facilitate corporate financing will remain in effect until the end of March 2010. Mizuno also opposed this move. From April 2010 onward, the bank will be prepared to provide ample liquidity mainly through funds-supplying operations against pooled collateral, which accept a wider range of collateral, the central bank said in Tokyo.

Today, the central bank also raised its economic outlook, and forecast deflation in coming fiscal years. The consumer price index, excluding fresh food, is estimated to fall 1.5% in fiscal 2009 versus 1.3% decline estimated previously.

Meanwhile, the central bank forecast a 0.8% drop in prices in fiscal 2010 and a 0.4% decline in fiscal 2011. The pace of decline in CPI would possibly slow down only modestly, given the recovery in the labor utilization level. The rate of decline in the CGPI is likely to gradually moderate from fiscal 2010 onward as the slack in the economy dissipates, said BoJ in its semi annual economic outlook.

An official report released earlier in the day showed that core consumer prices dropped 2.3% in September from a year earlier compared to the decline of 2.4% in August.

The central bank now expects the economy to shrink 3.2% in fiscal 2009 compared to a 3.4% fall estimated in July. The economy is set to remain on a recovery trend in fiscal 2010, but the pace of improvement is likely to be moderate until around the middle of fiscal 2010. In fiscal 2010, real GDP growth is seen at 1.2%, up from July's forecast of 1%. The growth rate is likely to reach a level clearly above the potential growth rate in the fiscal 2011.

The jobless rate fell to a seasonally adjusted 5.3% in September from 5.5% in August and the number of unemployed persons totaled 3.63 million, another report from the Ministry of Internal Affairs and Communications revealed today.

Thursday, the Bank of Japan announced its decision to maintain its key interest rate and to end the purchase of commercial paper and corporate bonds at the end of 2009 as scheduled, as it becomes necessary to conform to the changes in financial markets. (Market News Provided by RTTNews)