As Japan's economy fragile, BOJ should not raise interest rates
(From The Japan Times May 3 issue)

景気先行き不安、利上げ見送りは賢明

The Bank of Japan made public its "Outlook for Economic Activity and Prices." It shows that current Japanese and global economic conditions do not allow BOJ Gov. Mr. Masaaki Shirakawa, who became the central banker April 9, to follow a course of pressing for higher interest rates.

The biannual report said "downside risks to the economy" stem from uncertainties regarding "future developments in overseas economies as well as the effects of higher energy prices."

The report said that given these uncertainties, it would not be appropriate for the central bank to take a particular policy orientation. This means that the BOJ will temporarily freeze the inclination to raise interest rates. The BOJ said it will be flexible in making judgments on monetary policy.

The report projected that Japan's gross domestic product will grow 1.5 percent in real terms in fiscal 2008, down from the 2.1 percent projected by a similar report in October 2007. For fiscal 2009, the report projects 1.7 percent growth, almost the same as the nation's potential growth rate.

In the meantime, the U.S. Commerce Department reported that the U.S. economy grew only 0.6 percent in the first quarter of 2008. Soon afterward, the U.S. Federal Reserve decided to cut the federal funds rate, a key short-term target rate, by 0.25 points to 2 percent.

Japan's exports, which have underpinned the Japanese economy, are likely to slow to the extent that the U.S. economic downturn affects other countries that import Japanese goods. The BOJ report also forecasts that the key inflation gauge will rise 1.1 percent in fiscal 2008, up from the 0.4 percent forecast in October. The BOJ needs to carefully watch the conditions of enterprises and price movements.

日銀は「経済・物価情勢の展望」を発表、国内外の景気をふまえると、白川方明総裁は利上げ路線を棚上げせざるをえないことを示した。

展望リポートは「景気の下振れリスク」の要因に「国際金融市場の不確実性やエネルギー･原材料価格の高騰」を挙げ、「あらかじめ特定の方向性を持つことは妥当ではない」としている。08年度のGDPの成長率見通しを下方修正、09年度も潜在成長率並みにとどめた。

日本の輸出は米景気後退で減速しそうだ。日銀は企業と物価の動向に目配りし慎重に先行きを見定める必要がある。