Business

Bank of Japan warns economy under 'downward pressure'

Yen notes
Image caption Bank of Japan has been trying to maintain liquidity in the financial markets after the quake and tsunami

Japan's economy is "under strong downward pressure" due to the devastation caused by the earthquake and tsunami, the Bank of Japan (BOJ) says.

The bank said that the downward pressure largely stems from lost production and disrupted supply chains.

The central bank kept its monetary policy unchanged leaving the interest rates in the range of zero to 0.1%

BOJ said it will offer 1 trillion yen ($11.7bn; £7bn) in new one-year loans.

The loans will be extended to financial institutions in the quake-hit areas at an interest rate of just 0.1%.

Analysts say that given the current situation, the central bank is unlikely to alter its monetary policy for the time being.

"The BOJ sees no need to ease policy further and will stand pat for the time being, unless the nuclear crisis worsens significantly or production struggles to recover in the coming months," said Masamichi Adachi of JP Morgan Securities in Tokyo.

However, Mr Adachi warned that as the full extent of damage caused by the quake and tsunami becomes clear, the bank is likely to issue a further warning of its impact on economic growth.

"The BOJ will cut its economic forecasts for the current fiscal year but may raise its estimates for the next fiscal year in its economic outlook report later this month," he said.

"Such an outcome would not warrant a change in monetary policy, at least for now," he added.

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