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Japan forecasts no growth in 2009 Japan forecasts no growth in 2009
(about 2 hours later)
Japan's government has forecast that the country's economy will have zero growth in the year ending March 2010.Japan's government has forecast that the country's economy will have zero growth in the year ending March 2010.
It is the first projection from the government of no growth in the gross domestic product in seven years.It is the first projection from the government of no growth in the gross domestic product in seven years.
It follows a revised projection for the current fiscal year that the economy will shrink by 0.8%, instead of the 1.3% growth forecast in July.It follows a revised projection for the current fiscal year that the economy will shrink by 0.8%, instead of the 1.3% growth forecast in July.
The Bank of Japan has cut its key interest rate to just 0.1%, down from 0.3%, taking it lower than US rates. The Bank of Japan (BOJ) has cut its key interest rate to just 0.1%, down from 0.3%, taking it lower than US rates.
The Bank of Japan also announced that it would increase its purchase of Japanese government bonds to 1.4 trillion yen ($15.7bn) a month, up from 1.2tn yen. The BOJ leaves itself exposed to pressure to now cut rates to zero Koji Ochiai, Mizuho Investors Securities
The BOJ also announced that it would increase its purchase of Japanese government bonds to 1.4 trillion yen ($15.7bn) a month, up from 1.2tn yen.
"A small rate cut alone would not help the economy much," said Norio Miyagawa, economist at Shinko Research Institute.
"And with Japan's interest rates at nearly zero, the central bank will likely continue to adopt other measures to provide ample liquidity to help the economy."
"The BOJ leaves itself exposed to pressure to now cut rates to zero," added Koji Ochiai at Mizuho Investors Securities.
The markets will immediately begin to speculate about when the BOJ will be forced to return to zero interest rates."
'Worsening economy'
A survey earlier this week indicated business confidence in Japan was at its lowest in 34 years.A survey earlier this week indicated business confidence in Japan was at its lowest in 34 years.
Last week the government increased its economic stimulus plan by 23 trillion yen ($255bn; £171bn).Last week the government increased its economic stimulus plan by 23 trillion yen ($255bn; £171bn).
The world's second-largest economy - and Asia's largest - shrank by an annualised rate of 1.8% in the third quarter.The world's second-largest economy - and Asia's largest - shrank by an annualised rate of 1.8% in the third quarter.
Japanese exporters have been suffering amid the global financial downturn and the yen's surge to a 13-year high.Japanese exporters have been suffering amid the global financial downturn and the yen's surge to a 13-year high.
"The economy is worsening very quickly and the BOJ and the government will need to keep working closely. But there is still no guarantee that announced steps will be able to stop the economy from collapsing," said Hideo Kumano at Dai-ichi Life Research Institute.