BOJ holds key rate at 0.1%, repeats recovery outlook still uncertain+

TOKYO, Aug. 11 Kyodo -
The Bank of Japan decided Tuesday to hold its key interest rate steady at 0.1
percent in a widely expected move, while repeating its cautious economic
outlook on the back of increasing deflationary concerns as well as
deteriorating job and income conditions.

At a two-day policy meeting, the central bank maintained its view that Japan's
economy has ''stopped worsening'' due to pickups in exports and output and that
it is likely to start recovering in the latter half of fiscal 2009 ending next
March.
But the outlook is attended by a ''significant level of uncertainty,'' it added.
''We have yet to be confident about how strong final demand would be once the
current effects of the stimulus packages at home and abroad as well as
inventory adjustments have run their course,'' BOJ Governor Masaaki Shirakawa
said at a press conference.
He said correcting the ''huge'' imbalances the global economy accumulated
through the mid-2000s will take ''some time.''
Japan's economy is widely expected to show its first growth in five quarters in
the April-June period as exports and output rebound from a sharp downturn
triggered by the global financial crisis.
But economists warn that any recovery may be fragile as the deteriorating job
and income situations could damage already weak consumer spending while
companies are cutting capital investment sharply.
Japan's core consumer price index fell 1.7 percent from a year earlier in June,
marking the fastest ever pace of decline for the second straight month amid
falling energy costs and sluggish household demand.
The BOJ said it expects that the pace of decline in the key price gauge to
''accelerate for the time being.'' It added that the rate of decline could then
moderate in the latter half of the current fiscal year as a sharp fall in
energy prices from the previous year's historically high levels is likely to
shrink in due course.
''We do not think there is a risk (that Japan will fall into) a deflationary
spiral as of now,'' Shirakawa said. ''But since the pace of price decline has
been accelerating lately, we intend to check on economic conditions
carefully.''
The central bank is projecting the core CPI, excluding volatile fresh food
prices, to fall 1.3 percent in fiscal 2009 and decline another 1.0 percent in
the following business year.
Mari Iwashita, chief market economist at Daiwa Securities SMBC Co., said it
would take time for the BOJ to upgrade its economic assessment and regard the
economy as picking up because the weaknesses in capital investment and the job
market are likely to be prolonged.
''It is worrying how the economy will be in the January-March quarter after the
effects of the stimulus packages fade,'' she said.
After deciding in a July policy meeting to extend its emergency measures to
support corporate financing for three more months, the BOJ refrained from any
new policy initiatives this session.
At its previous policy meeting July 14-15, the BOJ extended its measure of
buying corporate debt from banks and providing them with unlimited low-interest
loans for three months from the Sept. 30 deadline to Dec. 31, judging that
corporate financing situations are improving but are still severe.
The BOJ's eight-member Policy Board voted unanimously to leave the target rate
for unsecured overnight call money unchanged. The central bank last cut the
rate in December, lowering it from 0.3 percent.
==Kyodo