The Bank of Japan will consider cutting interest rates for the first time in seven years this week when it assesses the impact of a global financial storm on Japan's brittle economy, a source with knowledge of the matter said today.
The BOJ, which declined to join the US Federal Reserve and other central banks in a coordinated rate cut this month, will monitor global markets before deciding whether to pull the trigger on Friday, the source said, speaking on the condition of anonymity.
The Fed is expected to cut its benchmark by 50 basis points today as part of a global scramble among policy makers to contain a crisis that has destroyed banks from Wall Street to Iceland and now threatens the world with recession.
The source did not comment on the size of any rate cut in Japan. The Nikkei business daily reported on Wednesday without citing sources that the Bank of Japan was leaning towards a 25 basis point cut to its benchmark, the unsecured overnight call money rate which is now at 0.5 per cent.
With its interest rates so low, the BOJ has been reluctant join the global push to ease policy, preferring to keep its powder dry for an emergency in the domestic economy that was largely shielded from the initial waves of the crisis.
"I think it is getting difficult for the BOJ to distance itself from the international co-ordination," said Naomi Hasegawa, a senior strategist at Mitsubishi UFJ Securities.
"The BOJ will have to cut interest rates now that markets are expecting it. The bank will have no other choice," she said. Expectations of a rate cut pushed the Nikkei share average, which had fallen to a 26-year low this week, up 7.7 per cent today.
Helped by the Nikkei report, the yen tumbled against the dollar yesterday, though it climbed back today to trade around 96 yen, close to a 13-year peak.