The Bank of Japan is keeping its monetary steady but toned down its views about economy in view of heightened international trade risks and slowdown in exports that is threatening to derail economic recovery. Factories across the world have reduced production due to slowdown in demand following trade war between US-China and also the turmoil in Europe due to Italy and Brexit. Following these increased risks the BOJ cut down its assessment of exports and industrial output as also growth levels of overseas economies. During a two day review of bank rates BOJ stated that it will keep short term interest rates at 0.1 percent and yields from government bonds of 10 year duration at zero percent.
This decision which was expected in industrial circles was made by 7-2 vote. The bank also held on to its view that Japanese economy is expanding at a moderate pace though exports and industrial output has been adversely affected due to slowdown in overseas growth. This sharp reduction is a serious cause of concern for BOJ and it is likely to put some thought into how it can be improved in the months ahead as situation of economic weakness seems to be becoming consistent, said strategist Masayuki Kichikawa.
The exports from Japan declined to their lowest level in last couple of years as large shipments to China declined. Factory output in the country posted its most dramatic decline in a year showing that slowdown in world markets was beginning to affect Japan too. Some in BOJ’s upper echelons expect demand to improve toward second half of this year after China’s trade tensions with US ease and its stimulus plans kick in that could improve demand and push up global growth. The bank is in a tight place as heavy deficit in past years has dried up liquidity in the market and hurt its profits while subdued inflation has pushed it behind several central banks.