Bank of Japan to keep rates on hold

It is highly probable that the Bank of Japan will keep interest rates on hold next week after growth estimates had been cut back, as well as a u-turn on their two year policy of increasing borrowing costs.

Rate could remain at 0.5 percent as the Bank is continuing to operate in a period of continued uncertainty as well as attempting to deal with rising energy costs and continuing inflationary pressures.

The central bank has had to consider weakening growth as soaring raw materials costs are affecting manufacturing and exports.

The BOJ Governor, Masaaki Shirakawa, has said that he was now focusing on risk caused by the potential of the economy to falter due to the rising costs causing the bank to shift to a neutral policy stance.

In a period where production has been reduced, exports were at their slowest pace in almost three years, whilst US exports declined for a seventh consecutive month as record oil prices and costlier raw materials are squeezing profits

This has hit the world’s second largest economy fairly hard as Japan’s gross domestic product slowed to an annualized 2.5 percent, whilst its GDP growth may slow to close to zero percent over the next three months.

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