TOKYO, 22 November 2003 — Bank of Japan Governor Toshihiko Fukui said yesterday he was concerned about chilling effects of terrorist attacks on global financial markets, while stressing Japan’s economy is clearly in a recovery.
Fukui said fears of further terrorist attacks made global financial markets nervous. “It is our common factor of concern,” Fukui told a news conference after a two-day meeting of the bank’s policy board, which decided unanimously to leave its easy money policy unchanged.
“I presume the market is having difficulties digesting the (terror) factor, which seems to be never-ending. We have to closely watch the psychological impact of the factor,” he said.
Japanese share prices were mixed Friday, with the benchmark Nikkei-225 index slipping 0.13 percent while the overall market inched up as escalating terror attacks on US and its allies in the Middle East and elsewhere dampened market sentiment, dealers said.
Rocket attacks on the main media hotel in Baghdad yesterday exacerbated investors concerns, already shaken by bomb attacks against British interests in Turkey the previous day.
Meanwhile, Fukui said Japan’s economy has embarked on a recovery but still requires vigilance as uncertainties, such as the negative impact of terrorist attacks on global growth, remain. “We have clearly confirmed an increase in output,” Fukui said. “A positive economic cycle has started moving forward. I mean this time ‘started,’ not appears to be starting,” he added.
But a cautious Fukui quickly added that he was not “too optimistic” about the prospects for the world’s second largest economy.
“There are various kinds of uncertainties and the Japanese economy has to move on while tackling structural problems,” he said.
“So the chances are high that the pace of recovery will remain slow.”
Fukui underlined the recent weakness of Japanese stocks, but added it is unlikely to derail the recovery. “It is true that foreign exchange rates, stocks and long-term interest rates are moving in uncertainties. We need to watch them closely,” he said. “Of them, stock price movements appear to be fluctuating most widely,” he said. “But we don’t regard it as an element to threaten the recovery scenario.”
The Bank of Japan earlier in the day released its monthly report, saying Japan’s economy is recovering gradually and is expected to continue recovering, albeit at a moderate pace.
The BoJ has been tackling deflation by offering commercial banks massive amounts of funds as there is little room for cutting Japan’s already super-low interest rates, which are about zero percent for overnight lending.
The bank last eased credit Oct. 10 to support economic recovery by raising the upper limit of the outstanding balance of current accounts held at the bank to 32 trillion yen ($294 billion) from 30 trillion yen.
But it has left official interest rates unchanged for two years. The bank briefly touched upon investors’ main concern that the yen’s long-held strength against the dollar would keep Japanese products expensive overseas in dollar terms and undermine the nation’s export-led recovery.
“In the foreign exchange and capital markets, the yen’s exchange rate to the US dollar and stock prices show somewhat unstable movements,” it said.