The Bank of Japan upgraded its assessment of the world’s second-largest economy and held its key interest rate unchanged at a near-zero 0.1 percent yesterday as it tries to nurture a recovery.
The unanimous and widely anticipated decision on the overnight call rate came at the end of the central bank’s two-day policy board meeting.
“Japan’s economic conditions are showing signs of recovery,” the bank said in a more optimistic tone than its previous statement, which had said the economy had “stopped worsening.”
It was the first upgrade since July.
The bank cited a rebound in exports and public spending as underpinning a recovery, while pointing to weak consumer spending and surging unemployment as risks.
Japan eked out its first quarter of growth in the April-to-June period after a yearlong contraction, but the jobless rate has reached a record high 5.7 percent and salaries are falling. Prices have also been waning, setting off worries about deflation, which could further sap energy from the economy.
Atsushi Matsumoto, economist at Mizuho Research Institute in Tokyo, warned much of the recovery is coming from government incentives such as tax breaks for ecological cars and refunds for green gadgets.
“The pace of the recovery is still slow,” he said. “It’s hard to be overly optimistic about the outlook.”
The central bank said stable prices were likely to return in the long run, although the outlook remained uncertain amid worries about overseas economies and global financial markets.
Bank Governor Masaaki Shirakawa said Japan did not face an immediate risk of falling into a deflationary spiral.
Shirakawa reiterated that despite some risks the economy is headed to a recovery by the latter half of fiscal 2009, which ends March 31 next year.
The Bank of Japan will decide on the fate of extraordinary steps — such as buying up corporate debt from banks, which were implemented after last year’s financial crisis — by Dec. 31, the date when such measures expire, he said.
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