News Room - Business/Economics

Posted on 20 Aug 2008

Economy 'sluggish,' BOJ says

Growth has turned "sluggish," the Bank of Japan declared Tuesday, revising downward its assessment of the economy for the second straight month. 

It is the first time in more than 10 years that the BOJ has used "sluggish" to describe the economy and underscores the recent downward trend as exports decline and prices of oil and raw materials continue to soar.

Last week's gross domestic product data showed that the economy contracted an annualized 2.4 percent in the April-June quarter. The Cabinet Office has also lowered its economic assessment, effectively declaring a recession.

In Tuesday's statement, the BOJ downgraded its description to "sluggish" from July's wording that the economy is "further slowing down."

"I don't think there is much difference between the perception of the government and the BOJ," BOJ Gov. Masaaki Shirakawa told a news conference. Although the outlook is bleak at present, Shirakawa said a sharp decline is unlikely.

The economy "is expected to return gradually to a moderate growth path as commodity prices level out and overseas economies move out of their deceleration phase," the BOJ statement said.

Among the downside risks the BOJ pointed out was the slowdown of the U.S. economy and rising commodity prices, which are likely to push down consumer spending. Meanwhile, inflationary pressure remains a risk, the BOJ said.

After the Policy Board wrapped up its two-day meeting, the BOJ also announced it will maintain its benchmark interest rate at 0.5 percent, unchanged since February 2007.

The decision was reached by a unanimous vote.

In fact, the BOJ has been seeking to raise the interest rate as it considers the current rate to lie in a very low range. Shirakawa's predecessor, Toshihiko Fukui, who retired in March, said the interest rate should be "normalized" at a higher level.

But faced with a slowdown triggered by the U.S. subprime crisis, the BOJ has been unable to raise the rate.

Despite the unchanged rate, however, reporters were taken a little by surprise during the news conference when Shirakawa mistakenly said the BOJ would maintain its key interest rate at "0.75 percent."

Shirakawa didn't realize his mistake until one of the BOJ officials sitting nearby whispered into his ear, and he quickly retracted his remark.

One reporter asked: "Do you want to make a comment? . . . I mean, there will be speculation (based on your mistake)."

"It's a simple mistake," Shirakawa replied. "It's not that the remark reflected my inner thoughts."