Bank of Japan decided to keep the interest rates unchanged at zero levels between 0.0% and 0.10%, matching analysts’ expectations especially amid the current challenges that face the Japanese economy.
On the other hand, BOJ kept the credit lending program at 30 trillion yen, and kept the asset purchase program unchanged at 40 trillion yen, disappointing markets as officials intend to save such actions for the upcoming months if conditions get worse due to Europe’s debt crisis.
However pressures are increasing on policy makers after Fitch downgraded Japan’s sovereign debt on Tuesday due to the rising debt-to-GDP ratio, and pointed to the importance of raising taxes.
Japan must keep its pledge to start raising sales taxes by 2014 to control its public debt which is expected to exceed 220% of the GDP next year and 214% in 2012.
Meanwhile, the Prime Minister Yoshihiko Noda plans to double the 5% increase in taxes in 2015 noting that this step is top priority in order to balance the budget and to reduce the public debt burden.
Bank of Japan expects the nation’s economy to return to growth during the upcoming period even if in a slower pace, alongside the continued worries over Europe’s debt crisis; meanwhile, the bank sees that higher growth rates will control deflation.
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