The outlook for the global economy remains uncertain following recent financial market turmoil and signs of slowing US economic growth, Bank of Japan (BOJ) Governor Toshihiko Fukui said yesterday.
Japan's central bank needs to keep a close watch on international developments, although the fallout from problems in US subprime mortgages to risky borrowers does not appear to be hurting Japan significantly, he said.
The Bank of Japan last week left its benchmark interest rate on hold at 0.5 percent, where it has been since February, opting to wait for clearer evidence that recent financial market distress has fully subsided.
"There remains uncertainty regarding the outlook of the global economy, such as the volatility on international financial markets that was triggered by problems in US subprime housing loans, and a risk of a US economic slowdown," Fukui said in a speech to a meeting of Bank of Japan branch managers.
"Therefore, we need to closely observe the trend in the international financial market and the global economy," he said.
Fukui said Japan's financial system remains stable overall.
"The subprime problem is not seen as having a serious impact on the stability of Japan's financial system at the moment," the BOJ chief said.
Fukui reiterated the bank's view that Japan's economy is gradually expanding and is set to maintain sustained economic growth.
But there are concerns about the impact of slowing exports to the US. A drop in corporate capital investment also caused Japan's GDP to contract in the second quarter of this year.
The government said yesterday that Japan's industrial output rose by 3.5 percent in August from the previous month, slightly better than previously reported.
An initial estimate last month had shown production growing by 3.4 percent after a dip in July when an earthquake hit automobile production.
Shipments increased 4.9 percent in August, against a preliminary reading of a 4.3 percent rise, the Ministry of Economy, Trade and Industry said.
Inventories rose a revised 0.2 percent, below the preliminary estimate of a 0.3 percent gain, the ministry said.
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