Japan's Central Bank Cuts Growth Forecast, Leaves Interest Rates Unchanged.
The Bank of Japan slashed its annual economic growth forecast by 0.3 percentage points and held interest rates steady Wednesday as uncertainty in the global economy continued to cloud Japan's outlook.
"The environment overseas has changed, and uncertainty over the global economy persists," Gov. Toshihiko Fukui told a news conference. "Downside risks to Japan are also increasing."
The central bank lowered its growth forecast for the fiscal year through March to 1.8 percent from 2.1 percent in April, noting "uncertainties regarding overseas economies and global financial markets" stemming from the U.S. subprime loan crisis.
Still, the bank kept its growth outlook for fiscal 2008 at 2.1 percent, saying Japan's economy was "likely to continue its sustained expansion" into next year, according to a report it released.
The forecast revision came after the BOJ's policy board voted 8-1 to keep a benchmark interest rate unchanged at 0.5 percent at a one-day meeting Wednesday. The board last hiked rates in February.
The decision was widely expected after bank officials had warned of downside risks to the U.S. economy and volatility in global markets.
The BOJ said in its report, however, that Japan's exports were likely to be buoyed by strength in other economies despite a possible protracted slowdown in the U.S. due to the correction in the housing market. The central bank also expected strong corporate performance to lead to a gradual rise in wages, as well as stronger private demand.
The report said Japan's financial sector remained little affected by the U.S. subprime mortgage crisis, but Fukui warned of lingering risks.
"If risk factors materialize, the global economy could worsen more than initially expected, and a negative impact on the Japanese economy will be unavoidable," Fukui said.
The decision to keep interest rates unchanged came amid lingering signs of deflation in Japan. The nationwide core consumer price index fell 0.1 percent in September for the eighth monthly decline.
In another sign of trouble ahead for Japan's economy, the government said Wednesday housing starts fell 44 percent in September from a year earlier to 63,018 units, down for the third straight month and considerably worse than analysts' expectations.
The data suggests that a new building standards law in Japan, which was enacted in June and has made obtaining building permits more difficult, is continuing to hurt the housing sector. Analysts have said that could weigh on economic growth.
On Tuesday, the government said the country's unemployment rate rose to 4.0 percent from 3.8 percent in August, the highest rate since March.
The Bank of Japan slashed its annual economic growth forecast by 0.3 percentage points and held interest rates steady Wednesday as uncertainty in the global economy continued to cloud Japan's outlook.
"The environment overseas has changed, and uncertainty over the global economy persists," Gov. Toshihiko Fukui told a news conference. "Downside risks to Japan are also increasing."
The central bank lowered its growth forecast for the fiscal year through March to 1.8 percent from 2.1 percent in April, noting "uncertainties regarding overseas economies and global financial markets" stemming from the U.S. subprime loan crisis.
Still, the bank kept its growth outlook for fiscal 2008 at 2.1 percent, saying Japan's economy was "likely to continue its sustained expansion" into next year, according to a report it released.
The forecast revision came after the BOJ's policy board voted 8-1 to keep a benchmark interest rate unchanged at 0.5 percent at a one-day meeting Wednesday. The board last hiked rates in February.
The decision was widely expected after bank officials had warned of downside risks to the U.S. economy and volatility in global markets.
The BOJ said in its report, however, that Japan's exports were likely to be buoyed by strength in other economies despite a possible protracted slowdown in the U.S. due to the correction in the housing market. The central bank also expected strong corporate performance to lead to a gradual rise in wages, as well as stronger private demand.
The report said Japan's financial sector remained little affected by the U.S. subprime mortgage crisis, but Fukui warned of lingering risks.
"If risk factors materialize, the global economy could worsen more than initially expected, and a negative impact on the Japanese economy will be unavoidable," Fukui said.
The decision to keep interest rates unchanged came amid lingering signs of deflation in Japan. The nationwide core consumer price index fell 0.1 percent in September for the eighth monthly decline.
In another sign of trouble ahead for Japan's economy, the government said Wednesday housing starts fell 44 percent in September from a year earlier to 63,018 units, down for the third straight month and considerably worse than analysts' expectations.
The data suggests that a new building standards law in Japan, which was enacted in June and has made obtaining building permits more difficult, is continuing to hurt the housing sector. Analysts have said that could weigh on economic growth.
On Tuesday, the government said the country's unemployment rate rose to 4.0 percent from 3.8 percent in August, the highest rate since March.
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