BOJ Likely to Keep Key Rate at 0.5% Before Publishing Outlook
The Bank of Japan will probably keep interest rates on hold this week as policy makers weigh the likelihood of slower growth against faster inflation.
Governor Masaaki Shirakawa and his six colleagues will leave the overnight lending rate at 0.5 percent at the meeting on April 30, according to all 39 economists surveyed by Bloomberg News. The rate is the lowest among major economies.
Policy makers will probably cut their growth forecasts and raise their projections for price gains in their twice-yearly outlook on the same day. Bonds tumbled on April 25 as investors bet that the central bank may need to raise the benchmark rate from 0.5 percent later this year to quell inflation.
“A growth slowdown and rising inflation will put the central bank in a difficult situation and policy makers will have to decide which factors they have to focus on,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp. in Tokyo.
Core consumer prices, which exclude fresh food, rose 1.2 percent in March from a year earlier, the fastest pace in a decade, the government said April 25 payday advance.
Investors last week saw an 83 percent chance for a rate increase by December compared with 38 percent before the inflation report was released, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of an interest-rate cut.
The central bank is likely to lower this year's growth forecast from the 2.1 percent stated in October and raise its projection for core-price increases from 0.4 percent.
The world's second-largest economy will expand 1.4 percent in the year ending March 2009 and core prices will rise 0.7 percent, according to the median estimate of 17 economists surveyed by Bloomberg. Bank of Japan policy makers consider prices to be stable in a range between zero and 2 percent.
The policy board will announce its interest-rate decision by early afternoon and publish the outlook at 3 p.m. Shirakawa will hold a news conference at 3:30 p.m.
Filed under: economics by Finance Boss