Bank of Japan Governor Toshihiko Fukui said the US economy is still likely to achieve a "soft landing" after weak economic data prompted a global stock sell-off.
The stock-price decline was a "healthy correction," Fukui told reporters in Tokyo yesterday after his policy board voted unanimously to keep the key overnight lending rate at 0.5 percent.
Fukui said the Bank of Japan would consider land prices and currencies in addition to economic and price data when setting interest rate policy.
The central bank doubled the key rate last month, saying rates need to be raised gradually as low borrowing costs could spur wasteful investment and asset bubbles.
The governor said that interest rates would stay very low for some time and that policy decisions were based on a close examination of economic data.
The yen has risen more than 2 percent since the Feb. 21 rate increase, partly after the stock-market rout between Feb. 27 and March 5 erased US$3.3 trillion in world market value and prompted investors to sell risky assets and repay yen loans.
Stocks in the US, Japan's biggest export market, slid last week as growing mortgage defaults heightened concern the country's home-loan crisis was spreading.
Fukui said the increase in defaults in subprime mortgages probably doesn't signal a change in trend.
The central bank has faced political pressure not to raise interest rates too quickly and with inflation still very subdued, it is expected to move cautiously with further monetary tightening.
Analysts said that political sensitivities linked to the July elections in Japan's upper house of parliament mean that the bank's next increase in interest rates is unlikely to come before the second half of this year.
"Minus a full-throttle slowdown in the US economy, the market is likely to grow hopeful of another rate hike after the release of January [to] March [GDP] data and once the upper house elections enter the picture in May-June," Morgan Stanley economist Takehiro Sato said.
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