TOKYO (dpa-AFX) - The Bank of Japan, or BoJ, lowered its assessment of the economy for a second consecutive month at its rate-setting meeting on Wednesday, citing negative impacts from the ongoing debt turmoil in Europe and the appreciation of yen.
The Policy Board decided to retain the key interest rate near zero, but refrained from boosting stimulus despite weak economic prospects.
The central bank kept the benchmark uncollateralized overnight call rate unchanged at zero to 0.1 percent. The asset-purchase program was maintained at JPY 20 trillion, after lifting it by JPY 5 trillion in October. The size of credit facility was left unchanged at JPY 35 trillion.
The bank noted that the moderate pick-up observed in Japan's economic activity in the recent months have paused, due to slowdown in overseas economies and yen appreciation.
Exports and production remained more or less stagnant due in part to the effects of the slowdown in overseas economies and of yen's appreciation as well as flooding in Thailand. Economic activity will remain almost flat for the time being, the bank said.
After that, the economy is expected to return to a moderate recovery path as the pace of recovery in overseas economies picks up, led by emerging and commodity-exporting economies, and reconstruction-related demand.
Improvement in business sentiment has slowed on the whole despite steady improvement in domestic demand-oriented sectors, the policy board observed.
The BoJ-Tankan survey revealed last week that business sentiment in Japan declined in the fourth quarter, largely erasing the rebound in the previous three months. This mainly reflected the damage to the manufacturing sector following the devastating floods in key production site Thailand.
The policy board said financial conditions in Japan continued to ease, although global financial markets continued to remain under heavy stress. Business fixed investment has been on a moderate upward trend and private consumption remained firm, it noted.
The policymakers said the Bank would continue to consistently make contributions as the central bank by pursuing powerful monetary easing through the comprehensive monetary easing measures to help the economy overcome deflation and return to a sustainable growth path.
Japan exited recession in the third quarter, expanding by an annualized 5.6 percent in the July-September quarter. The Organization for Economic Co-operation and Development said last month that it expects the economy to contract 0.3 percent this year before expanding 2 percent in 2012 and 1.6 percent in 2013.
Copyright RTT News/dpa-AFX