BoJ maintains rates, assessment on economy

The Bank of Japan late yesterday kept its overnight call rate at 0.1% as expected and maintained its outlook on the economy.

The BoJ said, "Economic conditions have stopped worsening. Public investment is increasing and exports and production are picking up. On the other hand, business fixed investment is declining sharply mainly reflecting weak corporate profits.

Private consumption, while there are some signs of a pick-up mainly attributable to the effects of various policy measures, remains generally weak amid the worsening employment and income."

It did note that the rate of decline in the CPI is expected to moderate in the second half of fiscal 2009, but the bank acknowledged that core deflation has accelerated mainly due to lower oil prices, and it is focusing on "the downside risks to economic activity and prices."

Japan's economy does appear to have stabilized and there have been positive developments following a near free-fall in economic activity in 4Q08 and 1Q09.

There are concerns, however, that the current uptick in production is mostly related to re-stocking depleted warehouses, and when more normal levels are reached, growth may flounder again.