Japan cuts interest rates further in a bid to stave off prolonged recession
The Bank of Japan has lowered interest rates today in an attempt to fight off a prolonged recession.
The rate was cut from 0.3% to 0.1% – the lowest rate since 2006.
Last month, it was announced that the Japanese economy, which is the world’s second largest, was officially in recession – its first in seven years. The country has been hit by weakening exports and falling corporate investment.
Meanwhile, earlier this week, it was reported that Japanese business confidence fell at its fastest rate for 34 years with a confidence index falling from -3 to -24 in the three months to December.
The interest rate cut follows that from the US Federal Reserve, who earlier this week cut its key interest rate from 1% to 0.25% – taking it to their lowest level since records began over 50 years ago.
According to analysts, the Bank of Japan was reluctant to make further interest rate cuts but had little choice following the US Fed’s huge cut on Tuesday.
Meanwhile, the Japanese Government is forecasting that the economy will have zero growth in the year ending March 2010.
The forecast follows a revised projection for the current fiscal year that the economy will contract by 0.8%, rather than the 1.3% growth forecast in the summer.
According to economists, a small rate cut is not enough to help the economy. With interest rates nearing the zero mark, it is likely that the central bank will have to take other action.
Last week, the Japanese Government increased its economic stimulus package by 23 trillion yen (£171 billion).
Following the rate cut announcement, the yen dropped against the dollar. Last week, the yen hit a 13-year high against the US currency.