Bank of Japan extends emergency steps

by Hiroshi Hiyama Wed Jul 15, 7:43 am ET
TOKYO (AFP) –

Japan's central bank said Wednesday it was extending its emergency measures to tackle the worst recession in decades, as it downgraded its outlook for the world's number two economy.
But the Bank of Japan said the slump was easing and economic conditions "have stopped worsening.""The current financial and economic situation is still severe, but we've seen clear signs of an improvement," central bank governor Masaaki Shirakawa told a press conference.
At the same time, however, "domestic demand remains weak," he added. The Bank held its key interest rate steady at 0.1 percent, as expected, and said it would continue its policy of buying up corporate debt to keep credit flowing to cash-strapped firms during the recession. The programmes, which were due to expire at the end of September, were extended for the rest of 2009. The BoJ also extended a currency swap agreement with the US Federal Reserve until February 1.
While there are hopes the recession is easing, gross domestic product is expected to shrink 3.4 percent in the financial year to March 2010, worse than a previous forecast for a contraction of 3.1 percent, it said.
The Bank also revised its outlook for the next financial year, predicting positive growth of 1.0 percent, against a previous projection of 1.2 percent.
It said the economy should start recovering from the second half of this financial year, supported by policymakers' efforts to tackle the economic downturn and a credit crunch. However, Shirakawa cautioned that uncertainty lingered, declining to outline a possible "exit strategy" from its emergency pump-priming measures. Japan entered recession in the second quarter of 2008 as its heavy dependence on overseas demand to drive growth left it highly exposed to the global downturn.