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has begun to recover, but it kept markets guessing on when it will
wind down emergency measures aimed at fighting the credit crunch.
Recovery hopes also got a boost from a report showing that Japan's
consumer confidence rose for a ninth straight month, hitting the
highest level in almost two years, the government said. The
government's consumer confidence index increased 0.4 points in
September from the previous month, to 40.5 — the highest since
October 2007. Deflationary pressures also appeared to ease as
wholesale prices rose 0.1 per cent in September from the previous
month. Japan's economy 'has started to pick up,' the Bank of Japan
said as it left its key interest rate on hold at 0.1 per cent, as
widely expected. It gave no indication of whether it would extend
its scheme, due to expire at the end of the year, to buy corporate
debt. BoJ governor Masaaki Shirakawa said a decision would be made
at the next meeting on October 30. 'The BoJ will keep supporting
the economy by maintaining an extremely loose monetary policy with
the current super-low interest rate,' he said. The situation
facing small companies 'remains severe' despite an overall
improvement in corporate financing, he told a news conference.
Analysts expect some of the BoJ's extraordinary steps to be wound
down soon as the worst of the credit crunch appears to have passed
and the economy returned to positive growth in April-June, exiting a
year-long recession. 'The Bank will follow through with plans to
terminate commercial paper and bond purchasing operations at end
December,' predicted Barclays Capital economist Kyohei Morita.
'These operations, which were extended once from a deadline of
end-September, have continued to go sharply undersubscribed in
recent months.' The Bank was more optimistic about the outlook
than it was last month, when it had said Asia's biggest economy was
'showing signs of recovery.' But even so analysts said an interest
rate rise looks unlikely anytime soon in Japan, where borrowing
costs have been kept very low for years to support a sluggish
economy. 'We believe the BoJ will hold the policy rate unchanged
at 0.1 per cent (for the) rest of 2009 and much of 2010,' said Calyon
economist Susumu Kato. The Bank will be anxious not to repeat its
blunder of August 2000, when it raised interest rates too soon and
was later forced to reverse the decision as the economy started to
worsen again. Japan's Financial Services Minister Shizuka Kamei
has accused the BoJ of 'talking in its sleep' with its remarks
suggesting that the emergency measures may be withdrawn. But
Shirakawa said that the BoJ had been assured by the new centre-left
government that it would respect the central bank's independence.
