Why Japan cut key rate to near zero

Roland Buerk Oct 5, 2010
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Why Japan cut key rate to near zero

Roland Buerk Oct 5, 2010
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TEXT OF STORY

STEVE CHIOTAKIS: Over in Japan, the central bank there has cut its interest rate to virtually zero. There’s growing concern in that country about how well the economy is recovering after the recession. And the Bank of Japan has been under pressure from politicians to tackle the strong yen, which is making Japanese exports less competitive. The BBC’s Roland Buerk is with us from Tokyo with the latest on that. Good morning, Roland.

ROLAND BUERK: Hi.

CHIOTKAIS: So this caught the markets by surprise. What finally persuaded the central bank in Japan to cut its key rate?

BUERK: Well it’s not only been politicians that have been pressuring the central bank, it’s been business leaders too. Firms here are becoming much more pessimistic about the future because they can see that the economy is struggling to recover from the recession. The problem is that the strong yen makes exports more expensive and less competitive. But it also makes imports, products coming into Japan, cheaper. And that contributes to Japan’s big problem: deflation, falling prices.

CHIOTKAIS: Now Roland, Japan’s economy relies heavily on exports. So how damaging has the weak U.S. dollar been to that country’s recovery?

BUERK: Japan relies on Americans to buy things like cars and electronics to drive growth in its economy. So with the dollar being weak that makes things from Japan much more expensive for American consumers, so exports have been falling month after month. And, of course, Japan can’t rely on its own people to spend their way out of trouble because the worries about the future are making the Japanese reluctant to dip into their pockets.

CHIOTKAIS: The BBC’s Roland Buerk from Tokyo. Roland, thank you.

BUERK: Thank you.

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