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More in Australia and Japan Make Defensive Moves By BETTINA WASSENER Published: October 7, 2008 HONG KONG Australia and Japan both sought to shield their economies from the global on Tuesday, with the Australian central bank cutting its key interest rate, and the Bank of Japan dampened speculation of coordinated rate cuts by major economies. In Sydney, the Reserve Bank of Australia cut its benchmark rate far more aggressively than expected by a full percentage point to 6 percent, twice as much as most observers had projected and the biggest cut since 1992. In Tokyo, the Bank of Japan, as expected, kept its key interest rate unchanged at 0.5 percent, having little leeway to cut borrowing costs further. The central bank appeared to play down the chance of coordinating a rate cut with other major central banks, but the bank’s governor, Masaaki Shirakawa, said coordination could involve working together with other central banks to supply markets with liquidity. The Associated Press quoted Mr. Shirakawa as saying that each country should manage monetary policy independently. “It is not desirable to undertake policy coordination that would involve measures inappropriate for each country’s economic and price situation,” Mr. Shirakawa said, according to The A.P. The comments threw cold water on expectations that financial officials from the countries might propose a coordinated, emergency policy move during their meeting later this week. In a nuanced shift in his outlook for the Japanese economy, Mr. Shirakawa said Japan might recover later than initially expected because of problems stemming from the financial crisis. The Standard & Poor’s Australian Stock Exchange 200 index in Sydney was down 3.3 percent before the central bank cut rates, but reversed its losses to close 1.7 percent higher. In Japan, the benchmark Nikkei 225 index fell more than 5 percent in early trade, to below the 10,000-point mark for the first time in five years, and closed more than 3 percent lower at 10,155.90. Although the Asia-Pacific region has not seen the extensive banking troubles that have plagued many United States and European banks, it has not remained immune from concerns that slowing global growth or outright recession will take its toll on export-dependent economies. “The recent deterioration in prospects for global growth, together with much more difficult market conditions even for credit-worthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,” the Reserve Bank of Australia said in a statement accompanying its rate decision. “Economic activity in the major countries is also weakening,” the bank said, “and evidence is accumulating of a significant moderation in growth in Australia’s trading partners in Asia.” Governments throughout the region have stepped up efforts to contain the contagion, especially as there is little evidence that the financial rescue package passed last week in Washington will soon salvage battered international confidence. “I expect that the failure of the U.S. to inspire confidence in the markets will have weighed on their decision today,” Scott Haslem, chief economist for , said of the Australian bank’s move. Mr. Haslem expects the Australian bank to lower the key cash rate further, to 4.75 percent, by the middle of 2009. “Into mid-2009, with the global economy in recession and dollar commodity prices lower, Australia will experience its most significant negative terms of trade shock in many decades (albeit from a highly stimulatory position),” he added in a research note. Even though the Bank of Japan suggested it would stand pat on rates, the government has signaled that it might deploy other tools to stimulate the sluggish, export-driven economy. Taro Aso, the new Japanese prime minister, said Monday that the government might expand an already announced $17.4 billion , saying that exports, which have driven the economy in Japan for a decade, would “drastically decline.” “Japan’s exporters are being hammered and there is a significant risk of a negative wealth effect from the falls in the stock market,” said Jesper Koll, chief executive of Tantallon Research Japan in Tokyo. “However, they do have tools available and banks here are well capitalized,” he said, adding that the next four to six weeks could see an announcement on additional stimulus measures. Elsewhere in Asia, soaring inflation constrains some central banks’ room for maneuver on interest rates. Indonesia on Tuesday raised its key overnight policy rate by 0.25 percentage point to 9.50 percent, its sixth increase so far this year. But some analysts believe the tightening cycle has come to an end. In India, too, double-digit price growth prevents the central bank from lowering the cost of borrowing. Instead, the Indian Reserve Bank of India on Monday cut the percentage of deposits banks have to hold with it in cash by 0.50 percentage point to 8.5 percent in order to ease conditions. In South Korea, the currency has continued to fall sharply, hitting a seven-and-a-half-year low on Tuesday. Standard & Poor’s, a ratings agency, warned that its rating for the country might fall if worsening credit quality among banks forced the government to take on significant additional liabilities on its balance sheet to ensure financial stability. The Australian central bank’s rate move fueled hopes of a wider international coordinated interest rate cut. The Bank of England is in any case expected to lower its key rate on Thursday and the is widely expected to follow suit before the end of the year. 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