The Bank of Japan left its benchmark interest rate unchanged and refrained from initiating fresh stimulus as policymakers await Greek election which in turn will decide the direction of Eurozone debt crisis.
The Policy Board on Friday unanimously decided to hold the key uncollateralized overnight call rate at around 0-0.1 percent. The size of the asset purchase fund and credit facility was also left unchanged at JPY 40 trillion and JPY 30 trillion, respectively.
The BoJ's interest rate decision came ahead of the crucial Greek elections on Sunday. Political instability has raised doubts about the nation continuing in the 17-nation currency bloc.
"The Bank will also do its utmost to ensure the stability of Japan's financial system, while giving particular attention to developments in global financial markets," the BoJ said in a statement that signals its willingness to take measures if markets destabilize.
The central bank upgraded its assessment of the domestic economy, saying it "has started picking up moderately as domestic demand remains firm mainly supported by reconstruction-related demand."
Going forward, the economy will return to a moderate recovery path as overseas economies emerge from the deceleration phase and domestic demand remains firm, it said. Nonetheless, the BoJ sees high degree of uncertainty about the global economy.
The International Monetary Fund early this week urged the BoJ to consider further monetary stimulus, including longer-dated government bonds and private securities, as the lender observed the yen is "moderately overvalued from a medium-term perspective."
The lender forecasts Japan's economy to expand by around 2 percent in 2012 and slow slightly to 1.75 percent next year.
"The asset-purchase program could be expanded substantially beyond current plans to increase the likelihood of achieving the 1 percent inflation goal by end 2014," the IMF said on June 12, referring to the central bank's price target.
On the price front, the central bank expects change in consumer prices to remain at around zero percent for the time being. The BoJ faces critical challenge of overcoming deflation, while taking the economy back to a sustainable growth path.
by RTT Staff Writer
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