The Bank of Japan signalled today that the worst of the global crisis may be over for the world's second-largest economy, which shrank at a record pace in the first three months of the year.
The central bank upgraded its view on the ailing economy for the first time in almost three years while keeping interest rates on hold, noting that steep declines in exports and output were levelling out.
“The pace of deterioration in the Japanese economy will likely moderate and the economy will likely stop deteriorating," the BOJ said in a statement at the end of a two-day policy meeting. In recent months, it had said the economy was deteriorating sharply.
“Financial conditions remain severe, although tensions have eased.”
The BOJ moves, which had been widely expected, echoed more upbeat assessments of the recession-hit global economy by a chorus of other policymakers around the world in recent weeks who are pinning their hopes on tentative signs of recovery.
The central bank did not update its numerical forecasts for growth or other key indicators, or mention if its less bearish outlook had effected its views on whether it should buy more Japanese government bonds (JGBs), which would push more money into the economy to spur growth.
But it did say it would expand the range of collateral it takes for its market operations to include US, UK, German and French sovereign debt, indicating it was still concerned about Japanese banks' ability to raise funds as financial conditions remained tight.
To keep credit flowing and save jobs, the Japanese government plans to set up a lending scheme worth up to 4 trillion yen to encourage banks to lend to large and medium-sized companies, the Nikkei business daily reported on Friday before the BOJ announcement.
BOJ Governor Masaaki Shirakawa will hold a news conference later in the day.
The BOJ's decision had little impact on dollar/yen, which was trading at 94.19 yen. JGB futures were down 0.24 point at 136.77, while Tokyo stocks were down 0.6 per cent.
“I think the BOJ has got their view right on the economy, as we're seeing signs of reaching a bottom,” said Seiji Adachi, senior economist at Deutsche Securities in Tokyo.
Bloomberg