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Global Biz

Japan central bank stays put on interest rates

(Agencies)
Updated: 2010-04-07 14:29

TOKYO?- Japan's central bank kept its key interest rate unchanged Wednesday and said the world's second-biggest economy is recovering.

The Bank of Japan's policy board voted unanimously to keep its overnight call rate at a super-low 0.1 percent. The bank has not tweaked that rate since December 2008.

The central bank described the economy as "picking up" due to expanding overseas demand and stimulus steps. It expects moderate growth for the time being and the expansion to accelerate once the corporate recovery spills over to households.

It acknowledged, however, that momentum is still too weak to drive a self-sustaining recovery in consumer demand at home.

The decision was widely expected after a key central bank report last week confirmed improving corporate morale. The quarterly "tankan" survey of business sentiment showed confidence rose for the fourth straight quarter amid growing faith in the global recovery.

The data likely gave the Bank of Japan justification to stay put on monetary policy after easing steps last month.

Board members decided in March to boost liquidity by expanding a low-interest loan program amid political pressure to escalate the fight against deflation.

The central bank says it does not tolerate deflation though it expects prices to head south for the next couple of years.

Deflation can hamstring economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It may also increase debt burdens.

"The bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," the bank said in a statement. "To this end, the bank will continue to consistently make contributions as a central bank."