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TOKYO : Japan's central bank on Tuesday kept its key interest rate unchanged at 0.1 percent to continue nurturing a moderate recovery, but signalled stronger concern about the impact of a surging yen.
In a slightly toughened stance, the Bank of Japan warned of risks posed by "increased uncertainty about the future, especially for the US economy" and pledged to take "policy actions in a timely and appropriate manner" if needed.
"We are aware that Japanese exporters have been significantly affected by the yen's strength," Bank of Japan governor Masaaki Shirakawa told a press conference Tuesday.
"We are very carefully watching the impact of the stronger yen on the Japanese economy," he added. The yen recently hit 15-year highs against the dollar.
The central bank last week extended a multi-billion-dollar loan programme to counter the effects of a strong yen on the Japanese economy, in response to government pressure ahead of next week's ruling party leadership election.
In its second loan expansion since March, the bank said it would offer 10 trillion yen (118 billion dollars) in six-month low interest loans in addition to 20 trillion yen from December's three-month loan scheme.
But markets were left unimpressed by the move, as stocks slumped and the yen rose further following its announcement.
Shirakawa defended the bank's actions Tuesday.
"I do not think it is appropriate to judge the success or failure of the measures in a short period of time," he said.
The safe-haven currency's strength puts Japanese exporters at a disadvantage against foreign rivals and erodes repatriated profits.
For every one-yen rise in the currency's value against the dollar, exporters can lose tens of billions of yen earned overseas when repatriated.
A recent government survey suggested many companies were considering moving production overseas if the yen stayed high, a scenario that could endanger Japan's growth, which slowed to an annualised 0.4 percent in April-June.
Analysts say the central bank's options are limited given that the yen's strength is a result of demand due to jitters over the health of the global economy, particularly the United States.
On Tuesday the yen rose to 83.84 to the dollar from 84.21 Monday.
Despite crawling out of a severe year-long recession in 2009, Japan's fragile recovery remains beset by deflation, as falling prices prompt consumers to defer purchases in hope of further falls, clouding corporate investment.
This cycle is exacerbated by a strong yen, which makes imports cheaper.
High public debt, weak domestic demand and softening exports are also overshadowing a fragile recovery.
The bank nevertheless maintained its assessment that the economy "shows further signs of a moderate recovery".
Japan's economy minister said Tuesday that a 50 billion dollar US infrastructure stimulus announced Monday by President Barack Obama, together with Japan's own fresh spending, could help ward off recent stock weakness and yen strength.
The government last week announced plans for a 920 billion yen stimulus package in an effort to boost Japan's economy.
"Recent weakness in stocks and the strong yen have stemmed from concerns over the US economy's downside," said Satoshi Arai, minister of state for economic and fiscal policy, at a regular press conference.
- AFP /ls
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