BOJ leaves key rate alone amid housing, other market woes

The Bank of Japan Policy Board decided by an 8-1 majority vote Wednesday to leave the bank's key short-term interest rate unchanged at 0.5 percent in line with market expectations.

The nine BOJ Policy Board members reached the decision at the end of a one-day meeting, saying in a statement that the central bank "will encourage the uncollateralized overnight call rate to remain at around 0.5 percent."

Most market players had expected no hike in the BOJ's benchmark rate because uncertainties remain in the global financial markets due to the U.S. subprime mortgage crisis.

As in the four previous policy meetings, in July, August, September and earlier this month, Atsushi Mizuno was the only BOJ policymaker who voted against holding the bank's target rate steady.

The central bank also said Wednesday it has downgraded its forecast for gross domestic product for the current fiscal year to next March from the initial projection of a real 2.1 percent rise to a 1.8 percent expansion.

In its semiannual economic outlook report, the BOJ said the revision from April is due to falling housing investment.

The downward revision was seen as inevitable to reflect the fact that the nation's GDP logged an annualized real 1.2 percent shrinkage in the April-June quarter, the largest contraction in four years.

However, the BOJ maintained its forecast that the economy will continue to post a real 2.1 percent annual growth through fiscal 2008, which starts next April.

The central bank said it has kept its GDP forecast for fiscal 2008 intact because the current weakness in housing investment is mainly due to tightened regulations in the industry, and such a technical factor-linked decline is likely to lead to a rebound in the next fiscal year.

The BOJ also lowered its April price trend projection from 0.1 percent to zero inflation for fiscal 2007 and from 0.5 to 0.4 percent inflation for fiscal 2008 in terms of year-on-year rises in the core nationwide consumer price index, which excludes fresh food.

The CPI forecasts have been cut because companies are reluctant to raise their product prices even in the face of soaring oil and other commodity prices amid enhanced deregulation and market competition, the bank said.

Japan's core nationwide CPI posted year-on-year declines for eight straight months up to September, indicating persistent deflationary pressure.