(BOJ) Statement on Monetary Policy, August 19, 2008

1. At the Monetary Policy Meeting held today, the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:

The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.5 percent.

2. Economic growth has been sluggish against the backdrop of high energy and materials prices and weaker growth in exports. While growth will likely remain sluggish for the time being, it is expected to return gradually onto a moderate growth path as commodity prices level out and overseas economies move out of their deceleration phase. The CPI inflation rate (excluding fresh food) is currently around 2 percent, highest since the first half of 1990s, due to increased prices of petroleum products and food. It is expected to be somewhat higher over the coming months but to moderate gradually thereafter. Thus it is likely that the economy will return onto a sustainable growth path with price stability.

3. With regard to risk factors, global financial markets remain unstable and there are downside risks to the world economy, particularly the U.S. economy. In addition, weaker income generation reflecting developments in commodity prices could potentially weigh on domestic private demand. Although the economy is under no pressure to adjust production capacity and labor, these downside risks to the economy demand attention. On prices, global inflationary pressures remain high. In Japan, it is necessary to be mindful of upside risks due to changes in the inflation expectations of households and the price-setting behavior of firms in addition to developments in energy and materials prices. Meanwhile, if the downside risks to the economy turn out to decrease, there will be an increased risk that prolonging the period of accommodative financial conditions will lead to swings in economic activity and prices.

4. The Bank, while maintaining the smooth functioning of the money market, will carefully assess the future outlook for economic activity and prices, closely considering the likelihood of its projections as well as factors posing upside or downside risks, and will implement its policies in an accordingly flexible manner.

(Reference)

Meeting hours:

August 18: 14:00-16:51
August 19: 9:00-12:25

Policy Board members present:

Masaaki Shirakawa (Governor)
Kiyohiko G. Nishimura (Deputy Governor)
Miyako Suda
Atsushi Mizuno
Tadao Noda
Seiji Nakamura
Hidetoshi Kamezaki

(Others present)

August 18

From the Ministry of Finance: Chikara Kawakita, Deputy Vice Minister for Policy Planning and Co-ordination (14:00-16:51)
From the Cabinet Office: Bunshichi Fujioka, Vice-Minister for Policy Coordination (14:00-16:51)

August 19

From the Ministry of Finance: Wataru Takeshita, Senior Vice Minister of Finance (9:00-12:13,12:17-12:25)
From the Cabinet Office: Bunshichi Fujioka, Vice-Minister for Policy Coordination (9:00-12:13,12:17-12:25)

Release of the Monthly Report of Recent Economic and Financial Developments:

2:00 p.m. on Wednesday, August 20 (Japanese)
4:30 p.m. on Thursday, August 21 (English)
-- English translation for summary will be released on 2:00 p.m. on Wednesday, August 20

Release of the minutes:

8:50 a.m. on Monday, September 22

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