Japan's central bank keeps key rate steady at 0.5%

Fukui maintains upbeat view on US economy, downplays recent market rout


TOKYO - BANK of Japan (BOJ) governor Toshihiko Fukui maintained yesterday his upbeat view on the US economy and played down recent volatile financial market moves as a healthy correction.

In a news conference held after the BOJ's widely-expected decision to keep rates on hold, he said the United States economy was still likely to expand gradually after weak economic data raised concern that growth in Japan's largest export market may slow.

'The US economy still appears to be heading for a soft landing,' Mr Fukui told reporters in Tokyo, after his policy board voted unanimously to keep the key overnight lending rate at 0.5 per cent.

'Although the housing market has slowed, consumer spending is solid so we're still seeing a gradual expansion' in the world's largest economy, he said.

In a monthly report released after the rate decision, the BOJ left its assessment of the economy unchanged, saying it is expanding moderately.

Mr Fukui said the BOJ will consider land prices and currencies in addition to economic and price data when setting interest rate policy.

The central bank doubled the key rate last month, saying borrowing costs needed to be raised gradually to prevent wasteful investment and asset bubbles.

The governor reiterated that interest rates will stay very low for some time and that policy decisions are based on a close examination of economic statistics.

Reports may show Japan's core consumer prices dropped in February or March because of cheaper oil, Mr Fukui said. Core prices, which exclude fresh food and are a key gauge of inflation in Japan, failed to rise in January after climbing 0.1 per cent year- on-year in December.

Mr Fukui said the drop in core prices would not necessarily be bad because lower oil costs help economic growth. Core prices will stay on an expansionary path in the long term, he added.

Mr Kazumasa Iwata, one of the bank's two deputy governors, said at the meeting that the policymakers should explain their outlook for consumer prices more clearly, according to Mr Fukui.

Mr Iwata was the sole dissenter to last month's rate increase.

Meanwhile, Mr Fukui downplayed the global stock price rout that erased US$3.3 trillion (S$5 trillion) in world market value from Feb 27 to March 5.

'We need to continue to monitor market movements closely and in a calm manner,' he said. 'This appears to be a healthy correction where markets themselves re-evaluated the way they take risks.'

Financial markets did not react much to Mr Fukui's remarks or to the BOJ's earlier decision.

Stocks in the US, Japan's biggest export market, slid last week as growing mortgage defaults heightened concern that the country's home loan crisis is spreading.

Mr Fukui said the scale of the defaults in sub-prime mortgages probably was not significant enough to alter the overall trend for the US economy.

BLOOMBERG NEWS, REUTERS