BOJ upgrades assessment for 3rd month, holds key rate at 0.1%+

TOKYO, Nov. 20 Kyodo -
The Bank of Japan upgraded its assessment of the Japanese economy Friday for
the third straight month, while maintaining its ultra-easy monetary policy to
support the recovery amid growing concern about deflation.

At a two-day policy meeting, the BOJ's eight-member Policy Board voted
unanimously to maintain the key interest rate at 0.1 percent. The central bank
last cut its target rate for unsecured overnight call money in December,
lowering the rate from 0.3 percent.
''Japan's economy is picking up mainly due to various policy measures taken at
home and abroad,'' the BOJ said in a statement. But it added, ''The momentum
for self-sustaining recovery in domestic private demand remains weak.''
The Democratic Party of Japan-led government declared the same day that Japan
has fallen into mild deflation, referring to a state of deflation for the first
time in over three years in its monthly economic report.
BOJ Governor Masaaki Shirakawa said at a press conference that the BOJ's view
on prices is consistent with the government's, if deflation is defined as
continuous price falls. ''I don't feel there is a difference in our views on
price moves.''
To help Japan pull out of deflation, Shirakawa said, ''It is vital to create an
environment that enables final demand such as corporate capital investment and
private consumption to expand in a self-sustained manner.''
Shirakawa said the BOJ will maintain its very low interest rate policy to
support the return of the economy to a sustainable growth path with price
stability.
Takahide Kiuchi, chief economist at Nomura Securities Co., said the
government's announcement that Japan is in mild deflation would ''justify an
extra budget for fiscal 2009'' to implement additional stimulus measures.
In making the announcement, the government ''may also intend to urge the BOJ to
take steps to combat deflation,'' Kiuchi added.
''It appears that the government is eyeing calling on the BOJ to increase the
purchase of government bonds,'' he said.
The government said Monday that Japan's economy grew an annualized real 4.8
percent in the three months through September, marking the fastest pace of
expansion in two and a half years.
But the data also showed that one indicator of price trends, the domestic
demand deflator, fell at its fastest pace in 51 years, underscoring rising
deflationary pressure on the economy.
In its latest semiannual outlook report released late October, the BOJ
predicted that Japan would experience at least three years of deflation through
fiscal 2011.
But Shirakawa denied that Japan is already in a deflationary spiral -- a
vicious cycle in which price declines lead to a deterioration in economic
conditions, resulting in further price declines.
The BOJ expects Japan's economy to grow in fiscal 2010 and 2011, according to
the semiannual report.
As for factors behind recent economic improvements, the BOJ said corporate
capital investment, which had been declining sharply amid severe earnings
conditions, had ceased to fall, and exports and production continued to
increase on improvements in overseas economies, especially in emerging
countries.
Looking ahead, the BOJ said Friday the pace of improvement in the Japanese
economy is likely to remain ''moderate'' until around the middle of fiscal
2010.
But it is likely to accelerate thereafter as improvements in the corporate
sector originating from exports are likely to spill over into the household
sector, the BOJ said.
==Kyodo
2009-11-20 22:47:03