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.

Deflation remains a problem for the economy. Japanese core consumer prices fell 1.2% in February from a year earlier – representing the 12th consecutive monthly decline that the economy has been in deflation.

Deflation (where prices fall rather than increase) can be a serious threat to an economy because it deters consumers and businesses from spending in expectation of falling prices.

Japan has battled with deflation in the past and was a problem for the economy during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

It is anticipated that the central Bank will leave rates at the low rate until around 2012 as a result of deflationary pressures.

Meanwhile, in a statement today, the Bank said: “Japan’s economy has been picking up mainly due to improvement in overseas economic conditions and to various policy measures, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.”

The decision to hold interest rates comes just a day after the Reserve Bank of Australia (RBA) elected to lift interest rates from 4% to 4.25%.

Australia was the first economy to raise rates from a 50-year low as the economic downturn eased.

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