TOKYO - Economists said that the Bank of Japan's halfpoint discount rate cut on Monday to 3.25% would offer little in the way of stimulus, and that therefore another rate cut may come in short order.
"We can't expect the economy to get much of a lift," said Masaru Takagi, chief economist at Fuji Research Institute.
The reduction in Japan's key rate was the fifth since July 1991, when it stood at 6%.
Economists said the latest drop came weeks earlier than expected and was probably timed to defuse fears that the Japanese stock market was suffering a crisis of confidence.
Attempt Seen to Restore Confidence
Geoffrey Barker of Baring Securities (Japan) and other economists said one reason behind the Bank of Japan's aggressiveness was the need to restore faith in the government's handling of the economy after top officials failed in a meeting Friday to agree on a strategy.
Other economists said that it often takes up to six months for the full effect of a discount rate cut to filter through the economy, and that Japan's economy is widely expected to start recovering by then anyway.
In contrast to the last cut, in April, when Bank of Japan Governor Yasushi Mieno flatly said no further cuts were coming, on Monday he left the door open for another downward move.
Olin Wethington, a U.S. assistant Treasury secretary in Tokyo, for trade discussions, applauded the rate cut and said Japan must use fiscal policy to boost growth.
"Unless demand in Japan is strong, the global economy will not be performing as it should", Mr. Wethington said.