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Friday 16th of July 2010
July 15, 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 (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 also raised its growth forecast for the current fiscal year to 2.6%.

In a statement, the Bank said: “Growth prospects will likely be higher for fiscal 2010 mainly due to acceleration of growth in emerging economies, but remain broadly unchanged for fiscal 2011.”

Japan fell into a severe recession following the global financial crisis but was one of the first major economies to emerge from recession - in the second quarter of 2009.

In related news, recent figures revealed Japanese core private-sector machinery orders – a highly volatile series seen as an indicator of corporate spending – fell more than expected in May.

Official figures revealed machinery orders fell by 9.1% in May compared with the previous month – the steepest fall since August 2008 – as companies held back on business investment.

The fall was far steeper than the 3% forecast by analysts.

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