Bank of Japan keeps overnight call rate target at 0.25 pct
The Bank of Japan's nine-member policy board has voted unanimously to keep the overnight call rate target at 0.25 pct, a move widely expected by the market. In July, the central bank raised the overnight call rate target to 0.25 pct from zero, its first rate increase in six years, amid signs that deflation was over. At the end of its two-day meeting, the board also decided to leave the Lombard rate, at which it lends direct to commercial banks, at 0.4 pct. And to limit any spikes in long-term interest rates, the central bank said it would continue to purchase 1.2 trln yen-worth of long-term government bonds each month. Economists said the Bank of Japan's decision was no surprise because, before raising interest rates, it needed to make sure that the US economy would not fall into a recession and the Japanese economy would not struggle to sustain its private-demand-led recovery. Daiwa Institute of Research senior economist Junichi Makino said: "As the Japanese economy is likely to see a lull later this year ... the central bank can perhaps wait until after the autumn of next year before the next rate increase." Some analysts said the recent decline prices of crude oil would also delay another increase in interest rates. In August, the core consumer price index (CPI), which excludes volatile prices of fresh food but includes energy prices, rose 0.3 pct from a year earlier. But if food and energy costs had been excluded, the CPI would have been 0.4 pct lower than a year before. Taro Saito, a senior economist at NLI Research Institute, said the next increase in interest rates could happen before the end of this year. He said the results of the Bank of Japan's latest quarterly Tankan survey of business sentiment suggested it was likely that private demand would sustain its strength. The Bank of Japan's policy board will hold its next meeting on Oct 31, when it will also publish its annual outlook report, which includes forecasts for GDP growth and consumer prices.
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