BoJ elects to hold interest rates at 0.1%
After a two-day policy board meeting, the Bank of Japan (BoJ) has elected to keep interest rates at 0.1%.
Interest rates in the world’s second largest economy have been at the low level since December 2008 in a bid to fight off deflation.
It is anticipated that the central Bank will leave rates at the low rate until around 2012 as a result of deflationary pressures.
Meanwhile, the bank also said it would double the amount of cheap short-term loans it is offering banks to 20 trillion yen (£146 billion).
The latest measures come amid pressure on the Government to take tougher action to combat falling prices, which threaten to hamper Japan’s economic recovery.
Japan was one of the first major economies to emerge from recession in the second quarter of last year as a result of a rebound in exports.
However, deflation remains a problem for the economy. Core consumer prices fell 1.3% in January against a year ago, representing the 11th consecutive monthly fall.
A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.
Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.
Last week, the Cabinet Office revealed the economy grew at a slower rate in the fourth quarter than previous estimates showed.
According to official figures, the Japanese economy grew by 0.9% between the October and December period, rather than the 1.1% previously estimated.
On an annual basis, the Japanese economy grew at a rate of 3.8% in the final quarter of 2009, down from the initial estimate of 4.6%.
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