Bank of Japan Holds Rates

The Bank of Japan has today announced its decision to maintain interest rates for the sixth consecutive month.

The central bank, responsible for determining interest rate policy on a monthly basis, has chosen to maintain interest rates at 0.5%, after widespread speculation that they would increase by a quarter of a percentage point.

The move has been reportedly backed by 8 out of the 9 members of the monetary policy committee, with the dissenting member voting to increase rates this month.

Recently published economic indicators from within Japan had lead many analysts to believe they were experiencing a slowing in activity, partly as a result or spiraling fuel costs and the shrinking trade surplus.

It was thought that by maintaining interest rates, the Bank could allow time for the economy to recover without risking having a detrimental effect on growth.

While the Japanese authorities maintain that the economy is in a period of moderate growth, figures released earlier in the week noted that the national trade surplus had closed significantly for the first time in almost a year – an indicator that the economy could be in for a slowdown, off the back of increasing fuel prices.

Analysts have attributed much of the Bank’s thinking to the recent upheavel on world stock markets. With ongoing unrest eminating from the US sub-prime lending crisis, analysts are suggesting that raising rates during such a risky period would be too gung-ho, favouring a cautious approach to avoid economic damage.

The Bank of Japan last changed its interest rate policy in February of this year, doubling the 0.25% interest rates of the time.

Prior to that, rates had remained stable since July 2006, reflecting the continuity favoured by the Japanese central bank during that period as a means of promoting economic stability.

Story link: Bank of Japan Holds Rates