Bank of Japan Kept Rates on Hold (AP) (15-02-2008)

TOKYO (AP) -- In a widely expected move, the Bank of Japan unanimously decided to keep interest rates on hold at its meeting on Friday as concern about a global slowdown increases.

The bank’s governor acknowledged that the global economic climate is uncertain and that volatility in financial markets would need time to settle down.

Although it had been speculated for most of 2007 that Japan might increase interest rates as growth in Japan seemed to be steady, the turmoil set off by the U.S. subprime mortgage crisis has taken the consideration off the table. Now, some are starting to speculate the central bank may cut interest rates instead.

Despite the fact that on Thursday, the government said the economy grew at a startlingly robust annual rate of 3.7 percent for the fourth quarter of last year, economists warn that this rate will slow in coming months.

In a separate monthly economic report, released Friday, the Bank of Japan lowered its assessment on the health of overseas economies, saying: "Overseas economies are likely to expand, although at a slower pace."

But it left its overall view on the Japanese economy unchanged, saying the trend for moderate economic expansion will continue. But the report also noted industrial production may slow.

Some investors predict that the Bank of Japan will be under pressure to ease credit in coordination with the U.S. Federal Reserve Board and other central banks around the world as part of a unified effort to keep global growth going.

Fukui is due to step down March 19, when his five-year term is up. There has been some debate about who will take his place. A deputy governor at the central bank, Toshiro Muto, also a former Ministry of Finance bureaucrat, is viewed as the favorite.

Source: AP