Japan’s central bank left its key interest rate unchanged at 0.1 percent yesterday, saying it was crucial for the world’s second-largest economy to overcome deflation.
At the same time, the Bank of Japan (BoJ) upgraded growth forecasts slightly, predicting the economy would shrink 2.5 percent this financial year before rebounding 1.3 percent next year.
“Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although there is not sufficient momentum to support a self-sustaining recovery in domestic private demand,” it said.
In October the BoJ forecast a 3.2 percent fall in GDP this year, then a 1.2 percent rise next year.
The central bank maintained its projection that the economy would see three years of deflation after its worst slump in decades, but that price falls might be less severe than previously thought.
Meanwhile, Standard & Poor’s (S&P) yesterday downgraded its outlook on Japan’s “AA” long-term rating from stable to negative.
It also affirmed its “AA” long-term and “A-1+” short-term local and foreign currency sovereign credit ratings for the country.
The change reflected the view that diminishing policy flexibility may lead to a downgrade unless fiscal and deflationary pressures are eased, S&P said.
The net general government debt burden, predicted at 100 percent of GDP for the fiscal year ending March 31, is among the highest for rated sovereigns, it said.
Government policies also point to slower fiscal consolidation than the rating agency expected.
The rating agency forecast that Japan’s net general government debt would peak at 115 percent of GDP over the next several years.
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