Japanese central bank slashes discount rate Action is response to economic woes

September 21, 1993|By Thomas Easton | Thomas Easton,Tokyo Bureau

TOKYO -- Faced with the worst economic slowdown since World War II and mounting evidence of deflation, the Japanese central bank cut its benchmark discount rate this morning to 1.75 percent from 2.50 percent.

The reduction of the highly symbolic rate was hailed by government officials. Hiroshi Kumagai, head of the Ministry of International Trade and Industry, said the discount rate's cut to an historic low was appropriate given the economic problems.

Following the announcement, stock prices rallied moderately on the Tokyo market, and the dollar strengthened, reversing the direction of yesterday's activity.

The rate cut came only days after the Japanese government announced a new spending package to stimulate business activity and against a background of increasingly bleak economic reports.

Yesterday, the annual survey of land prices showed the first consecutive decline in two decades, while Honda Motor Co. and the Yamaha Corp. joined the parade of companies breaking with Japanese tradition and announcing that thousands of jobs would be cut in the near future.

Reflecting growing anxiety and slack demand, consumer and investment spending have both stalled. Data released last week showed the Japanese economy in a recession during the second quarter of the year as conditions worsened.

The cumulative impact of recent reports, as well as corporate restructurings, have raised intense fear that Japan's historically low unemployment rate could soar.

The cut in the discount rate had been widely expected. Yesterday, unattributed reports suggested that a smaller cut, to 2 percent, might be enacted. But the yen, which had been weakening slightly, strengthened and stock prices fell.

Similarly, Japan's conservative fiscal management has given it room to provide further government relief to the beleaguered economy. Although it has only been three business days since the announcement of an emergency economic package the government valued at about $60 billion, expectations are already growing for another stimulus in the immediate future.

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