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Monday 24th of May 2010
May 21, 2010    

BoJ elects to hold interest rates at 0.1%

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by Kay Murchie

After a two-day policy board meeting, the Bank of Japan (BoJ) has elected to keep interest rates at 0.1%, as widely expected.

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 March from a year earlier – representing the 13th 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.

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

In the meantime, the BoJ has today unveiled a new lending program, designed to bolster the economy.

Meanwhile, in a statement, the country’s central bank said “it recognises that Japan’s economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability.”

Yesterday, the Cabinet Office announced that the world’s second largest economy expanded by 1.2% between January and March compared with the previous quarter – marking the fourth straight quarter of expansion.

The growth was boosted by exports, while on an annual basis, growth was 4.9% – however, analysts had expected growth of between 5.4% and 5.9%.

However another risk for the Japanese economy is the country’s debt, which currently stands at nearly 230% of GDP – the highest of any industrialised nation.

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