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Bank Of Japan Retains Interest Rate, Holds Off Stimulus

Bank Of Japan Retains Interest Rate, Holds Off Stimulus

The Bank of Japan on Tuesday maintained its benchmark interest rate near zero and refrained from announcing additional stimulus amid signs that economic activity is gradually gathering pace.

Following the end of its two-day monetary policy meeting that ended on Tuesday, the central bank's policy board decided to retain the benchmark uncollateralized overnight call rate at 0-0.1 percent as expected.

The central bank did not enchance the stimulus this month after surprising the markets in February, when asset purchases were increased by JPY 10 trillion. The asset purchase and credit facility were left unchanged at JPY 30 trillion and JPY 35 trillion respectively.

The bank maintained its economic view, saying "Japan's economic activity has shown some signs of picking up, although it has remained more or less flat."

Japan faces the critical challenge of overcoming deflation and this goal will be achieved through efforts to strengthen the economy's growth potential and support from the financial side, the bank said in the statement. The BoJ expects the year-on-year rate of change in the consumer price index to "remain at around zero for the time being." In February, the BoJ set a numerical inflation target of 1 percent for the first time.

The BoJ also released detailed rules for a new US dollar lending arrangement, equivalent to JPY 1 trillion, a preliminary outline of which was released at the March meeting.

The bank observed that the economy may return to a moderate recovery path along with an improvement in overseas economies. Reconstruction-related demand is also expected to support growth in the coming months.

Regarding risks to the economic outlook, the bank said "there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, developments in international commodity prices and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth."

The BoJ noted that global economies have still not emerged from the soft patch, but U.S. economic conditions have continued to improve moderately. The European economic conditions have stopped deteriorating, the bank said.

by RTT Staff Writer

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