All about business

The International Monetary fund urged Japan's central bank to refrain from raising interest rates, the lowest in the industrialized world, until concern abates about the strength of the economy.

The Bank of Japan's main goal should be to “safeguard the expansion,'' Daniel Citrin, IMF deputy director and mission chief for Japan, said yesterday in Tokyo following meetings with central bank and Finance Ministry officials.

Bank of Japan Governor Masaaki Shirakawa told lawmakers today that economic growth is slowing because of costlier oil and raw materials and the central bank will implement policy flexibly. The bank last month cut its growth forecast and shelved a two-year policy of gradually raising interest rates.

“Bank of Japan officials may characterize their policy stance as a wait-and-see attitude,'' Citrin said. “That is the appropriate stance.''

Economists predict the central bank will keep the overnight lending rate at 0.5 percent for at least the rest of the year. Shirakawa's policy board on April 30 lowered its growth forecast to 1.5 percent from 2.1 percent for the year ending March 2009.

“Rates should be maintained at the current level until concerns about domestic growth and the external environment have diminished,'' Citrin said. “Recent indicators suggest we're headed for a slowdown.''

Profit Drag

Shirakawa said rising commodity prices “would mean a drag on corporate profits and a decline in households' purchasing power'' that could force companies and consumers to cut spending. Crude oil exceeded $135 a barrel for the first time today.

The outlook for Japan's economy is “very uncertain'' and “it's not appropriate for the bank to have any predetermined notion about the direction of policy,'' the governor said. At the same time, he added, the central bank expects the world's second-largest economy to eventually resume a moderate expansion.

Exports will keep increasing because demand from emerging economies and commodity-producing countries will remain solid even amid the U.S. slowdown, Shirakawa said, after a report today showed shipments overseas grew at a faster pace last month.

Japan's exports, the main driver of last quarter's expansion, rose 4 percent in April from a year earlier after climbing 2.3 percent in March, the Finance Ministry said.

Meanwhile Citrin also reiterated the IMF's criticism of Japan's government for being too “unambitious'' in tackling its debt. At 1.5 times gross domestic product, Japan's public debt is the largest among developed economies.

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