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Thursday 13th of August 2009
August 11, 2009

Japan holds key interest rate and adopts cautious approach


by Kay Murchie
”Japan

Japan’s central bank has again kept its key interest rate at 0.1% and has adopted a cautious outlook for the economy.

Interest rates in the world’s second largest economy have been on hold since December, when the Bank reduced rates from 0.3%.

The bank said conditions had stopped deteriorating but warned that unemployment is expected to rise and consumer spending will remain weak.

Meanwhile, the Cabinet Office in a monthly economic report today also maintained a cautious view. It said the economy was “picking up” but remained in a “difficult situation.”

Japan’s export-dependent economy has been hit by a slump in demand for its products overseas, particularly cars and electrical goods.

Figures released earlier this week show that Japanese core machinery orders (a highly volatile series seen as an indicator of corporate spending) rose 9.7% in June compared with the previous month.

The rise represents the biggest gain in four months and was more than treble the 2.9% analysts had forecast.

However, despite the positive data, a survey of manufacturers suggested a pessimistic outlook ahead.

The survey, conducted by the Cabinet Office, showed that manufacturers expect orders to fall in the July to September period compared with the previous three months.

Finally, the Bank of Japan has revised its forecast for the next financial year, predicting positive growth of 1.0%, revised from its earlier projection of 1.2%.

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