The members of the monetary policy board of the Bank of Japan determined that the steps taken by the bank to battle the current economic slowdown have been effective - although they haven't ruled out additional measures should the need arise, minutes from the board's meeting on December 20 and 21 revealed on Friday.
The board members stressed the need to make utmost efforts to maintain financial stability, the minutes showed. They added that the pace of the economic slowdown abroad was more severe than anticipated, and that it could have a negative effect on Japan's domestic demand.
"Careful attention should continue to be paid to how Japan's economy will be affected by the above uncertainty regarding financial and economic developments overseas," the minutes said. "Regarding risks to the price outlook, considerable uncertainties surround future developments in international commodity prices, leaving potential for movement in either direction."
At the meeting, the board lowered its assessment of the economy for a second consecutive month, 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 0 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.
"The pick-up in Japan's economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen," the minutes said. "As for domestic demand, business fixed investment has been on a moderate increasing trend and private consumption has remained firm. On the other hand, exports and production have remained more or less flat, due in part to the effects of the slowdown in overseas economies."
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 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.
"In order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, the bank will continue to consistently make contributions as the central bank by pursuing powerful monetary easing through the comprehensive monetary easing measures as described above, ensuring financial market stability, and providing support to strengthen the foundations for economic growth," the minutes said.
Also on Friday:
• The Ministry of Internal Affairs and Communications said that core consumer prices in Japan were down 0.1 percent on year in December, in line with forecasts following the 0.2 percent contraction in November. Overall CPI came in at -0.2 percent on year, also matching expectations after showing a 0.5 percent fall in the previous month. On month, core CPI and overall CPI were both flat.
Core inflation for Tokyo - considered a leading indicator for the nationwide trend - was down 0.4 percent on year in January. That missed forecasts for a 0.3 percent contraction, which would have been unchanged from the previous month. Overall CPI for Tokyo was at -0.3 percent, beating forecasts for -0.4 percent - which also would have been unchanged. On month, Tokyo's overall CPI was down 0.3 percent and core CPI plunged 0.7 percent.
• Retail sales in Japan were up 2.5 percent on year in December, the Ministry of Economy, Trade and Industry said, standing at 13.049 trillion yen. That beat forecasts for an increase of 2.1 percent following the upwardly revised 2.0 percent decline in November. Sales from large retailers eased 0.4 percent on year, also topping expectations for a decline of 0.6 percent following the 2.5 percent fall in the previous month.
On a seasonally adjusted monthly basis, retail sales collected 1.8 percent - well above forecasts for a gain of 0.4 percent following the 2.0 percent contraction a month earlier. For the fourth quarter of 2011, retail sales added 0.8 percent on year to 35.003 trillion yen while large retail sales shed 1.3 percent on year to 5.333 trillion yen. For all of 2011, retail sales fell an annual 1.2 percent to 134.043 trillion yen, while large retailer sales lost 1.8 percent on year to 19.593 trillion yen.
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