BoJ holds key rate steady between zero and 0.1pc

September 7, 2011
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, TOKYO, Sep 7 – The Bank of Japan on Wednesday left its key rate unchanged but refrained from further easing measures after last month expanding its asset-buying scheme to help safeguard a fragile post-quake recovery.

Expectations had risen that officials would unveil some sort of easing after Switzerland’s central bank on Tuesday surprised markets by announcing it would cap the strength of the franc against the euro amid fears for its economy.

The BoJ in a statement said its policy board voted unanimously to keep its key rate between zero and 0.1 percent, as it held steady after last month’s move to expand by 10 trillion yen ($129 billion) a scheme to buy assets.

The yen strengthened against the dollar in Tokyo trade after the announcement, as positions that were built on speculation the BoJ would offer further easing measures were unwound, dealers said.

“Japan’s economic activity has been picking up steadily while the supply-side constraints caused by the earthquake disaster have been mostly resolved,” the central bank said in a statement.

It maintained an optimistic view of the recession-hit Japanese economy, saying it expected it “to return to a moderate recovery path from the second half of fiscal 2011”.

The BoJ said it would retain its virtually zero interest rate policy until it “judges that price stability is in sight” and the economy overcomes the deflationary pressures that have dogged it for months.

Japan’s manufacturers have staged a rebound since the March 11 earthquake and tsunami that left around 20,000 dead or missing and shattered crucial supply chains, heavily disrupting Japanese industry.

But concerns have grown that those efforts could be undermined by a strong yen, which erodes exporters’ profits and makes domestically made goods more costly to sell overseas.

The Swiss National Bank on Tuesday said it would put a ceiling on the Swiss Franc, which like the yen has surged to record highs on safe haven demand amid global growth concerns.

Last month the BoJ said it would expand to 50 trillion yen a 40 trillion yen scheme to buy securities and boost liquidity to help shore up confidence and support the economy amid worries over the strong yen.

The bank’s asset purchase fund, a key policy tool it uses to buy Japanese government bonds, corporate bonds and exchange traded funds, was expanded to 15 trillion yen from 10 trillion yen.

It also boosted a credit facility by 5 trillion yen to 35 trillion.

On Wednesday it said it “has subsequently been steadily implementing the decision.”

After the BoJ announcement the yen rose to 77.14 against the dollar, from around 77.40 beforehand.

In late August the Japanese unit surged to a post-war high of 75.95 against the dollar, despite an earlier 4.5 trillion yen intervention by Japan to curb its strength versus the greenback and euro.

Amid concerns that the unit’s strength could prompt more companies to shift jobs and production abroad, Tokyo last month unveiled a $100 billion facility to help combat the strength of the yen and support companies.

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