BOJ raises economic assessment, holds key rate at 0.1%+

TOKYO, Sept. 17 Kyodo -
The Bank of Japan upgraded its economic assessment Thursday, confirming that
the nation's economy is picking up, albeit moderately, from the worst recession
in decades.

The BOJ's eight-member Policy Board also voted unanimously to leave the central
bank's key interest rate unchanged at 0.1 percent at a two-day policy meeting.
The central bank last cut its target rate for unsecured overnight call money in
December, lowering the rate from 0.3 percent.
''Japan's economic conditions are showing signs of recovery,'' the central bank
said in a statement, citing increasing exports and output against a backdrop of
progress in inventory adjustment and a recovery in overseas economies,
especially emerging economies.
On financial conditions, BOJ Governor Masaaki Shirakawa said at a press
conference, ''Improvement moves are spreading.'' He said the environment for
companies to issue commercial paper and corporate bonds is improving although
some severity still remains for small and medium-sized companies.
His comments came a day after Japan's new minister in charge of financial
affairs, Shizuka Kamei, harshly criticized banks for being reluctant to lend
and forcible in withdrawing money from small corporate borrowers. The new
minister proposed introducing a three-year moratorium on loan payments for
small companies to help prevent bankruptcy.
As to the new administration led by the Democratic Party of Japan, which gained
power for the first time since its establishment, Shirakawa expressed hope that
the government will ''adequately'' handle various challenges the Japanese
economy faces but declined to comment on Kamei's proposal.
The BOJ's latest economic assessment represents an upgrade from last month when
it said economic conditions had ''stopped worsening.''
The bank continued to project that Japan's economy would start recovering from
the latter half of fiscal 2009, beginning in October.
Japan's gross domestic product marked its first expansion in five quarters in
the April-June period, with an annualized real growth of 2.3 percent.
But the unemployment rate hit a record high 5.7 percent in July, while the
average monthly salary continued to fall for the 14th straight month. Consumer
prices also kept falling at the fastest pace on record in the same month,
raising fears of deflation.
Although ''there are signs of a better-than-projected recovery in emerging
economies, risks to the economy are still on the downside,'' the BOJ said.
The BOJ must decide whether to continue or terminate its temporary measures of
buying corporate debt from banks and providing them with unlimited low-interest
loans after the steps expire at the end of this year.
In July, the BOJ's Policy Board decided to extend the measures for three months
from the previous deadline of Sept. 30 to Dec. 31, judging that corporate
financing conditions remain severe.
Miyako Suda, one of the BOJ policymakers, said in a speech last week, however,
that the need for extraordinary funding measures is ''receding.''
She also noted that adverse effects from such emergency steps could increase if
the bank keeps them in place for an unnecessarily long period.
On recent record falls in consumer prices, the BOJ said the pace of the decline
is likely to moderate later this fiscal year due to the fading effects of
record high oil prices a year earlier.
==Kyodo