The Japanese central bank has cut its benchmark interest rate to almost zero in an attempt to stimulate its domestic economy.
Japan’s export-driven economy has been struggling for some time, partly owing to a slowdown in overseas economies and the effects of the yen’s appreciation.
Therefore, Japan’s rate has been held at 0.1% since the end of 2008.
Although Japan’s economy now shows signs of a moderate recovery, the pace of recovery is slowing. The Bank of Japan (BoJ) says it will maintain the “virtually zero interest rate policy” until price stability returns. (article continues below)
“The pace of economic improvement is likely to slow for some time before returning to the moderate recovery path,” the BoJ says. “Amid heightened uncertainty about the future, especially for the US economy, attention should still be paid to downside risks to Japan’s economy.”
Apart from a weaking export sector, domestic consumption has also been weak. Consumer price inflation has been slowing.
The BoJ says this weaker-than-expected economic activity will delay Japan’s return to a sustainable growth path with price stability. It has corrected its growth forecasts downward.