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TOKYO: The Bank of Japan left its ultra-low interest rates unchanged at 0.5 percent on Friday amid weak inflation and uncertainty about the outlook for the US economy, driving the yen down to fresh lows.
BoJ governor Toshihiko Fukui said the central bank would raise interest rates only gradually, dampening speculation about a possible hike next month.
The BoJ's decision, which was unanimous, had been widely expected given recent falls in Japanese consumer prices although there had been market speculation about a possible split vote with some members backing a hike.
Fukui told reporters that the Japanese economy remained on a recovery track, thanks to brisk exports, expanding domestic demand, a strengthening job market and stable prices.
He said there was a "high possibility that the Japanese economy will continue its sustainable recovery".
Fukui has warned of the risks of keeping interest rates very low for too long and has previously said the central bank could raise them again even if consumer prices are falling, as they did in April for a third straight month.
"While possibilities are still high that prices will stay at around zero for now, they will be in the positive territory in the long run," Fukui said.
"Our stance is that we will gradually adjust interest rate levels in line with the pace of the recovery in prices, confirming prospects for sustainable economic growth while monitoring risk factors," he said.
Expectations that Japanese interest rates will remain low some time, coupled with speculation about a possible rise in US borrowing costs, have sent the yen down to a four-and-a-half year low against the yen.
The dollar rose to as high as 123.45 yen in late Tokyo trade Friday, the highest level since December 2002 after the BoJ chief gave no clear hints of an imminent rise in Japanese interest rates, dealers said.
Japan's economy is in the midst of its longest sustained recovery in post-war times but there are concerns about the outlook for the US economy, while Japanese inflationary pressures seem virtually non-existent.
"Today's unanimous decision was mainly due to lingering concerns about a potential slowdown in prices," said Masaki Fukui, senior market economist in the forex division at Mizuho Corporate Bank.
"The chances of a rate hike in July are very, very slim now, but the market consensus is still August," he added.
Many economists believe the central bank, despite having independence in setting monetary policy, is unlikely to move ahead of July 22 upper house elections to avoid irking Japan's scandal-hit government.
But the BoJ governor insisted the central bank had "no pre-judgement" about the July meeting.
"We will carefully look at prospects for the economy by analysing available data and monitoring economic situations," he said.
The BoJ has charted a steady course since February, when it jacked up its benchmark interest rate for the first time since last July's end to years of virtually free credit aimed at defeating deflation.
The BoJ's Fukui said that the sliding yen did not necessarily pose a risk to the Japanese economy. A weaker currency generally pushes up the cost of imports, fuelling inflation, while boosting the profits of exporters.
- AFP/so
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