Bank of Japan Cuts Growth forecast.

Japan’s central bank has had to dramatically reduce its outlook for growth and, has as a result, raised its inflation forecast today.

It is predicted that the world’s second-largest economy will grow 1.5 percent, which is less than the October estimate of 2.1 percent which indicates the uncertainty of the economy and the difficultly being faced as a result of the global economic situation.

The banks report makes clear that the downside risks in terms of growth are great and will pose a threat to future growth.

Masaaki Shirakawa, the central banks governor, has said that the key lending rate will remain at 0.5 percent.

Although the country has gradually raising Japan’s borrowing costs they still remain the lowest of the major economies.

With economic activity down and the continued rice in prices almost certain, there are arguments amongst economists and cynics that the central bank has not taken the appropriate action to ensure the correct direction of the monetary policy.

Growth has continued to fall as the US is seemingly stumbling into recession and the demand for Japanese exports is reducing coupled with the fact that raw material prices are higher and increased inflation are seriously hurting the bottom line.

The yen is currently trading at 104.13 per whilst the yield on Japan’s five-year note has fallen by 9.5 basis points, which is the most for nearly 6 months.

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