Speculation mounted today that Japan's central bank could cut its super-low interest rates this week to tackle a looming recession in Asia's largest economy.
It would be the first such move since March 2001 when the Bank of Japan introduced an unprecedented policy of almost free credit to try to pull the economy out of the deflationary doldrums.
The Bank of Japan 'is leaning toward' reducing its key rate by 25 basis points to 0.25% following the recent plunge on the Tokyo stock market, the influential Nikkei business daily reported without naming its sources.
The Japanese economy shrank in the second quarter of this year and there are increasing fears that it is once again in recession, which is usually defined as two straight quarters of economic contraction.
Japanese industrial output rose 1.2% in September from the previous month, beating the market expectation of a 0.5% rise, official figures show today. But the gain came after a sharp 3.5% drop in August and the outlook remained gloomy, with the government forecasting a fall of 2.3% in October and a drop of 2.2% in November.
Japan's economy relies heavily on exports and the weakness of the global economy is reducing demand for Japanese goods overseas. A stronger yen is also making Japanese exports less competitive.
The US Federal Reserve is widely expected to deliver another cut in its interest rates later this evening and markets expect further interest rate cuts in Europe as well.
