Saturday, February 10, 2001
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Posted on: Saturday, February 10, 2001

Japan central bank's rate cut first in five years

Associated Press

TOKYO — Worried about the nation’s sputtering economic recovery, Japan’s central bank yesterday cut the rate on its loans to banks for the first time in more than five years.

In a policy meeting, the Bank of Japan decided to cut its official and largely symbolic discount rate to 0.35 percent from 0.5 percent, effective Tuesday. It was the first such cut since September 1995.

Analysts said the rate cut would have little effect on Japan’s economy, as most Japanese lenders raise funds from other private institutions and not the central bank.

"The amount that goes into the economy through BOJ lending is very small these days. Cutting the (discount rate) doesn’t mean much because nobody borrows at that rate," said Takuji Okubo, senior economist at Goldman Sachs in Tokyo,

Still, the bank’s decision drives home overall investor anxiety about the Japanese economy. Worries about the economy grew after the government said Thursday that Japan’s economy shrank 0.6 percent in the July-September quarter, revising its previous announcement in December that the economy had grown 0.2 percent.

The announcement has the nation worried it may not meet its target for 1.2 percent growth for this fiscal year.

The revisions — the largest made to such figures since 1978 — indicate that corporate Japan continues to ail, with business investment lower than the preliminary data.

Personal consumption remained flat from the previous quarter in the revised data, indicating that worries about a wobbly stock market and a wave of corporate restructuring continue to discourage spending.

Also expected to add to the damage on the economy is the slowdown in the United States, which could hurt demand for Japanese products.

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