This is the unedited press release from Bank of Japan


At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for theintermeeting period:

The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.1 percent.


Exports have been decreasing substantially reflecting the deterioration in overseas economic conditions, and domestic demand has become weaker against the background of declining corporate profits and the worsening employment and income situation in the household sector.

Financial conditions have remained tight on the whole, despite improvements in issuing conditions for CP and corporate bonds. Under these circumstances, economic conditions have deteriorated significantly. The pace of decline in exports and production is expected to moderate as inventory adjustments progress both at home and abroad, but economic conditions are likely to continue deteriorating for the time being due to a further weakening in domestic private demand. Meanwhile, CPI inflation (excluding fresh food) has recently moderated reflecting the declines in the prices of petroleum products and the stabilization of food prices, and, with increasing slackness evident in supply and demand conditions, will likely become negative.

The Bank''s baseline scenario through fiscal 2010, in which expectations of both medium- to long-term growth and inflation are assumed to remain generally unchanged, projects that the economy will start recovering from the latter half of fiscal 2009, with price declines abating as global financial markets regain stability and overseas economies move out of their deceleration phase. Although this scenario offers the prospect of the economy returning to a sustainable growth path with price stability in the latter half of the projection period, uncertainty is high.

With regard to risk factors, much depends on global financial conditions as well as developments in overseas economies, and attention will need to be paid to the downside risks posed to economic activity. In addition, there is the risk of a further weakening in domestic private demand if firms'' medium- to long-term growth expectations decline and pressures to adjust capital stocks and employment increase. If financial conditions should tighten further, pressures acting to depress economic activity from the financial side may become more marked and the adverse feedback loop between financial and economic activity may intensify.

Turning to prices, there is a possibility that the inflation rate will decline further if downside risks to economic activity materialize or commodity prices fall. In this case, the risk of a decline in the medium- to long-term inflation expectations of firms and households warrants
attention.

In order to support the economy, since last fall the Bank has taken various monetary policy actions in three main areas: reducing the policy interest rate; ensuring stability in financial markets; and facilitating corporate financing. Today''s decision to expand the range of eligible collateral was made with a view to ensuring stability in financial markets. In addition, to secure stability in the financial system, the Bank resumed its purchases of stocks held by banks, and is examining the specifics of providing subordinated loans to banks. The Bank will continue to exert its utmost efforts as a central bank to facilitate the return of Japan''s economy to a sustainable growth path with price stability.


Available at:

http://www.boj.or.jp/en/type/release/adhoc09/k090407.pdf