Fall in Japanese confidence, current account surplus as BoJ keeps zero interest rates

Japanese household confidence dropped in the third quarter, according to a report released yesterday.

An index of confidence among households with two or more people fell to 44.8, seasonally adjusted, in the third quarter from 45.4 in the second, the Cabinet Office said today.

But stronger business sentiment provides a basis for growth in Japan, according to the Bank of Japan.

"Investment has continued to increase against the background of high corporate profits and a modest improvement in business sentiment," the Bank of Japan said in its monthly report for October, released in Tokyo today. The bank forecast an end to seven years of falling prices this year.

Halting deflation would put expansion in the world's second-largest economy on a firmer footing after four recessions in 15 years. The report suggests Bank of Japan board members, who voted by a 7-2 majority earlier today to leave interest rates at zero, are closer to ending that four-year-old policy.

If Japan moves out of deflation, higher oil prices would be an important factor. It certainly has been a factor in the narrowing of Japan's current account surplus in August.

Japan's current account surplus narrowed as rising oil prices pushed up the import bill of the world's second-largest economy.

The current account surplus narrowed 15.6 percent to 1.22 trillion yen ($10 billion), compared with the same month a year ago, the Ministry of Finance said in a report released in Tokyo today. The median forecast of 26 economists surveyed by Bloomberg News was for the surplus to shrink 19 percent to 1.16 trillion yen.