Bank Of Japan Chief Sounds Cautious Note

Japan's central bank chief Toshihiko Fukui expressed concern recently that a downturn in the U.S. economy could slow global growth, suggesting that the Bank of Japan won't raise interest rates anytime soon. "The U.S. economy is widely expected to slow in the 4th-Q 2007 and the 1st-Q of 2008 on the back of a continued adjustment in the housing market," Fukui told reporters recently after meeting with business leaders in central Japan. He said the BOJ needs to watch if the U.S. credit crisis, caused by rising defaults on risky mortgages, puts a dent in consumer spending, suggesting the bank won't be able to raise rates until it confirms the U.S. economy hasn't fallen into recession. Christmas shopping figures will be key to gauge that impact, he said. The American economy is a vital export market for Japanese auto and electronics exporters. U.S. economic growth may slow to around 1.5% for the next two quarters, he said, down sharply from the 4.9% growth rate in the 3rd-Q. That can put a drag on global growth. "The global economy may worsen if risks, such as a worsening of the U.S. and European economies, were to materialize," Fukui told the business leaders earlier. Still, he was relatively upbeat about the domestic economic outlook, saying the subprime mortgage crisis was unlikely to seriously impact the country's financial system. He said Japanese financial institutions' exposure to credit markets is relatively small so it appears each financial institution or group can absorb losses sufficiently. He doesn