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The Bank of Japan's monetary policy board members said that there remains some upside risk to the recovery of the emerging economies from the global slowdown, minutes from the October 13 and 14 monetary policy meeting revealed on Thursday.
With that in mind, the minutes also indicated that the bank needs to continue to maintain the current accommodative conditions - while also making sure the markets are aware of that stance. A downtrend in process is expected to continue in the near term, the bank added.
"While there are signs of a better-than-projected recovery in emerging economies, risks to the economy remain on the downside, stemming from future developments in the global financial and economic situation," the minutes said. "With regard to prices, there is a possibility that inflation will decline more than expected, if the downside risks to the economy materialize or medium- to long-term inflation expectations decline."
At the meeting, the board unanimously decided to maintain the uncollateralized overnight call rate at 0.1 percent, as expected. The bank made no comments on scrapping its corporate debt purchase programs.
The bank cut rates in December by 20 basis points to the current level - marking the first easing October 31, when the bank lowered rates by 20 basis points from 0.50 percent. That rate cut was the bank's first in seven years, and it snapped a strong of 22 consecutive meetings of keeping the rates on hold. The BoJ had kept rates unchanged since a 0.25 percent increase in February 2007.
"Japan's economy has started to pick up," the minutes said. "Public investment has been increasing, and exports and production have also been rising against a backdrop of progress in inventory adjustments both at home and abroad as well as a recovery in overseas economies, especially emerging economies. In these circumstances, business sentiment, especially at large manufacturing firms, is showing some improvement."
The decline in business fixed investment also moderated, the bank said, while private consumption remained generally weak amid the severe employment and income situation.
Further, the BoJ noted increasing signs of improvement in the financial environment.
"The Bank, paying attention for the time being to the downside risks to economic activity and prices will continue to exert its utmost efforts as the central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability," the minutes said.
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