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August 10, 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 Bank will leave rates at the low level until around 2012 as a result of deflationary pressures.

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.

However, deflation and a high level of debt have raised fears over its recovery but the BoJ said there are signs that the recovery is gathering momentum after exports and production continue to grow.

Meanwhile, the news from Japan to hold interest rates comes hours before the US Federal Reserve is set to announce its decision on interest rates.

Interest rates in the world’s largest economy have stood at the low level of between 0% and 0.25% since December 2008.

The US central bank has previously said that as a result of subdued inflation and high unemployment, low interest rates are required for “an extended period”.

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