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Bank Of Japan Wary Of Downside Risks To Growth
Written by Saumyatanu   
Monday, 27 December 2010 05:59
Bank Of Japan Wary Of Downside Risks To Growth

(Forex News) - Japan is facing more downside risks to its economic growth and price outlook than upside risks, notes of the Bank of Japan's November 4-5 policy meeting said on Monday.

The minutes of the meeting, which was brought forward to be held just a day after the US Federal Reserve announced a $600 billion program to buy up government bonds, also showed one BOJ member warning the effects of the Fed's bond buying were "highly uncertain."

The Bank of Japan held interest rates at 0-0.1% and finalized the details of its 5 trillion yen asset purchase program at the November meeting.

"A few members expressed the opinion that careful attention should be paid to the economy's vulnerability to downside risks, particularly when the pace of economic improvement remained slow," the minutes said.

Members continued to be wary of the strong yen hurting Japan's economy by curbing exports and corporate profits.

"Many members said that careful attention should continue to be paid to the possibility that the appreciation of the yen might exert downward pressure on Japan's economy by negatively affecting business and household sentiment, in addition to depressing growth in exports and corporate profits," the minutes said.

"In this regard, one member noted that prospects for corporate profits in the second half of fiscal 2010 were severe, particularly for exporters, reflecting the appreciation of the yen."

Policymakers differed on their views on the Fed's new round of bond buying, with one member remarking that the program had already contributed to improving household and business sentiment and that the downside risks to the US economy had "weakened somewhat."

"On the other hand, a different member was of the view that the effects of the measure taken by the FOMC [Federal Open Market Committee] were highly uncertain and growth in the US economy was still likely to remain low for some time," the meeting notes said.

Meanwhile, at its October 28 meeting, the policy board of the BOJ discussed expanding the central bank's 5 trillion yen asset purchase program.

"A few members said that the bank could consider, for example, front-loading its asset purchases conducted under the program, or an increase in the total purchase amount of the program in the future, if necessary," the minutes of the meeting said.

Japan's economy grew a better-than-expected 1.1% on a quarterly basis between July and September. However, this was mainly fueled by one-off factors, such as the rush to beat the expiry of a government subsidy for green cars, and many observers expect the recovery to lose momentum heading into 2011.


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