Bank of Japan keep rates at 0.3 percent

Last month the Bank of Japan cut its benchmark interest rates from 0.5 percent to 0.3 percent, which meant that the country had the lowest interest rates among the world’s major economies, and despite expectations being towards a further rate cut, it would have left little room for manoeuvre.

As a result Japan’s central bank kept its key rate unchanged at 0.3 percent, although they expressed a warning that the economic outlook is highly uncertain, given that export demand is unlikely to resurrect without the improvement of the global economy.

The Bank’s governor, Masaaki Shirakawa, indicated that cutting interest rates to nearly zero would help the economic recovery, however now is not the time as monetary policies alone were not enough to deal with the situation, with other measures needed to be introduced alongside future rate cuts.

Shirakawa revealed that the Bank of Japan is unlikely to follow the same steps as in 2001-2006, when interest rates were close to zero, as it may clog up the money markets all together.

There is the fear that even more aggressive rate cuts could lead to banks stopping lending to each other.

According to Mari Iwashita, chief market economist at Daiwa Securities, such a statement means that there is a slim chance of any further cuts, unless there is a drastic change in the global financial situation.

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