BoJ cuts interest rates

The Bank of Japan cut interest rates yesterday. Bloomberg reports:

The Bank of Japan cut its benchmark interest rate to 0.3 percent to help stave off a prolonged recession.

Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5 percent after four of the eight board members dissented, the central bank said in Tokyo today. Three wanted to cut the rate to 0.25 percent, and one voted to leave it unchanged, Shirakawa said.

Apparently, the rate cut was not big enough for some.

The yen rose to 96.87 per dollar at 5:54 p.m. in Tokyo, from 98.43 before the decision... The Nikkei plunged 5 percent today, capping a record 24 percent monthly decline.

But the economy is expected to slow anyway.

The central bank slashed its growth forecast for the year ending March to 0.1 percent from 1.2 percent predicted in July. The economy will expand 0.6 percent next fiscal year and 1.7 percent in the period starting April 2010, it said in a twice- yearly outlook published after the rate decision...

Inflation will evaporate next fiscal year, the bank said. Core consumer prices will rise 1.6 percent in the current fiscal year and fail to increase in the following 12 months, it said. Prices will gain 0.3 percent in the year starting April 2010.

The trend is already apparent in September economic data released yesterday. Again from Bloomberg:

Consumer prices excluding fresh food climbed 2.3 percent from a year earlier, after rising 2.4 percent in August, the statistics bureau said today in Tokyo. The unemployment rate fell to 4 percent from 4.2 percent as job seekers stopped looking for work amid the economic slowdown...

Household spending fell for a seventh month in September and the ratio of jobs to applicants slid to a four-year low, separate reports showed...

The number of people in the workforce shrank by 200,000 from August, today's report showed, causing the decline in the jobless rate. The number of people employed fell by 110,000, the report said, the fourth drop in five months.