It did so as the yen plummeted to its lowest level in eight years. So the policy board of the Bank of Japan debated for eight hours Friday before deciding that another interest-rate cut would have little effect on the economy, and left rates right where they were. A further drop in interest rates might stimulate corporate investment and expansion, but it would also send the yen tumbling further. The discount rate in Japan is already at a low 0.5 percent. That is 4.5 percentage points below the prime interest rate in the United States.
Credit here is the lowest for any major industrial nation.
Mortgages are typically available for a bargain-basement 1.2 percent. Yasunari Ueno, an economist at Fuji securities told Bloomberg News, citing the vulnerability of other Asian currencies. At the same time, policymakers do not view a rise in interest rates as an option even though they acknowledge that it would be certain to arrest the decline of the yen, which most observers believe is on its way to considerably lower levels against the dollar. Mr. Nakamura dismissed the complaints of Japan's trading rivals around the world, from nearby Korea to the United States and the European Community, that depreciation of the yen makes Japanese goods so low-priced on world markets as to undercut the competition. ''Price competition must be strengthened by lowering exchange rates,'' he acknowledged, but he said any rise in exports would result from the demand of buyers abroad more than a drop in prices. What is important is the economic welfare of the country, not the trade imbalance.