TOKYO —

The Bank of Japan is set to hold a two-day policy meeting Monday and is widely expected to leave its key short-term interest rate unchanged at 0.5 percent as the central bank remains highly alert to a slowdown in the country’s economy. The BOJ is also expected to downgrade its overall assessment on the Japanese economy for the second consecutive month. In July, the bank said the economy is ‘‘slowing further.’’ Weak exports, which are due largely to the slowing U.S. economy, as well as weak domestic demand given rising inflation, and sluggish corporate capital spending are among particular concerns for the BOJ, sources close to the matter say. The meeting of the BOJ’s Policy Board comes amid gloomier prospects for both the Japanese and global economies.
   
The government earlier admitted that Japan’s economy may have entered a contraction phase, suggesting its longest period of postwar economic expansion since February 2002 may have ended. In the August report, the Cabinet Office downgraded its evaluation of the country’s economic conditions, saying, ‘‘The economy is weakening recently.’’ In addition, the office said last Wednesday the economy posted a negative growth in the April-June quarter for the first time in a year. The nation’s real gross domestic product contracted 0.6 percent from the previous quarter, the weakest figure in almost seven years. Speculation has faded that the BOJ may raise interest rates as rising energy and raw material costs help push the bank into a wait-and-see mode in order to watch more closely any developments in the U.S. and European economies, analysts say. However, BOJ Governor Masaaki Shirakawa said last month that the central bank is watchful for a ‘‘negative spiral’’ in which rising prices lead to higher wages—a burden for businesses. Once such a situation occurs, the bank will not rule out the option of handling it with a tighter monetary policy, he said. Many analysts share the view the BOJ will not move interest rates for the moment. Hiroshi Shiraishi, economist at Lehman Brothers in Japan, said that conditions of the country’s economy are getting worse as the global economy faces a ‘‘strong headwind.’’ Lehman maintains the view that the BOJ will not increase borrowing costs until the first half of next year at the earliest. Masaaki Kanno, chief economist at JPMorgan Securities, said the weak second quarter GDP figures added up to the bank’s woes in its attempt to normalize the country’s unusually low interest rates. Kanno still believes there is a chance that the next rate action by the BOJ will be upward, but he also said the weak growth data has made it likely that the BOJ considers cutting interest rates more seriously.

Kyodo

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  Altria at 03:03 PM JST - 19th August

  Wow JT, you picked it right!

  Can you pick some stocks for me too?

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