Bank of Japan May Keep Rate at 0.1% as Recovery Loses Steam

Bank of Japan policy makers will probably hold the benchmark interest rate near zero today and maintain emergency lending programs as the economic recovery shows signs of weakening.

Governor Masaaki Shirakawa and his colleagues will keep the overnight lending rate at 0.1 percent, according to all 23 economists surveyed by Bloomberg News. The bank will refrain from unveiling any new policy steps, having already extended credit-easing programs until the end of the year, they said.

Japan’s recovery from its worst postwar recession may be losing steam as companies cut spending and fire workers. Shirakawa said on Aug. 31 that he’s not yet confident the economy will keep improving after global stimulus spending runs out and companies finish restocking inventories.

“The driving forces for the economy’s recent pickup are all temporary, and Japan doesn’t have much room to explore further fiscal and monetary policy steps,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “BOJ board members apparently share the view that an exit from their extraordinary measures is out of sight.”

The world’s second-largest economy grew at an annual 2.3 percent pace last quarter, the first expansion in more than a year, fueled by government spending at home and abroad. Figures have since shown the jobless rate rose to an unprecedented 5.7 percent in July, machinery orders fell and consumer prices dropped a record 2.2 percent amid weakening household demand.

On Guard

Policy makers globally remain on guard about the world economy. Federal Reserve Chairman Ben S. Bernanke this week warned U.S. growth may not be strong enough to quickly reduce the unemployment rate, even as he said the worst recession since the 1930s has probably ended. Finance chiefs from the Group of 20 said this month it’s premature to unwind record-low interest rates and more than $2 trillion in fiscal stimulus.