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Bank of Japan keeps ultra-low rates unchanged

June 15, 2012

TOKYO: The Bank of Japan today kept its key interest rate unchanged at between zero and 0.1%, and said it would also leave a 70 trillion yen (US$885 billion) asset purchase programme in place.

After a two-day policy board meeting the nation’s central bank said the vote on keeping the interest rate unchanged was unanimous.

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

“In global financial markets, some nervousness continues to be seen, mainly due to concerns about the European debt problem. Particular attention should therefore be given to developments in these markets for the time being.”

The decision to keep the rate unchanged was likely to disappoint some Japanese lawmakers who have called on the BoJ to do more to stimulate the world’s third-largest economy.

In April, the BoJ rolled out the latest in a series of easing measures in a bid to halt the damaging spiral of falling prices, saying it would hike its asset purchase programme by 5.0 trillion yen to the current 70.0 trillion yen.

While seemingly good news for individual consumers, falling prices are bad for the economy as a whole because they encourage shoppers to put off purchases in the hope they will pay even less for goods in the future.

This cuts into corporate profits and stops firms investing in capital and employees because they are unable to see future demand.

The bank has also boosted a loan programme amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year’s quake-tsunami disaster and flooding in Thailand.

The central bank has been forced to resort to the unconventional measure as its ability to free up money has been limited since interest rates were cut to their record lows at the end of 2008 during the global financial crisis.



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