BoJ keeps interest rate, boosts growth forecast

Thursday, July 15, 2010
TOKYO (AFP) - – Japan's central bank kept its key lending rate unchanged at 0.1 percent on Thursday, as widely expected, and raised its growth forecast for the current fiscal year to 2.6 percent.
"Japan's economy shows further signs of moderate recovery," the Bank of Japan said in a statement, adding however that overcoming deflation and returning to sustainable growth remained a "critical challenge".
The bank has kept its key lending rate unchanged since December 2008, the pinnacle of the global financial crisis, and lags behind other Asian economies that have recently tightened their monetary policies.
The central bank upgraded its growth projection from a previous forecast of 1.8 percent in April, as the world's second biggest economy benefited from strong exports on the back of fast growth in emerging economies.
The bank however slightly downgraded its GDP forecast for the 2011 fiscal year to 1.9 percent from a previous estimate of 2.0 percent.
"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," the statement said.
The BoJ also upgraded its forecast for its core consumer price index (CPI) excluding fresh food for the year ending March 2011 to -0.4 percent, from an April forecast of -0.5 percent.
For the following fiscal year, it kept its forecast unchanged at 0.1 percent.
Japan has been stuck in a deflationary spiral since its asset bubble burst in the early 1990s, and consumer spending has never fully recovered to become a major driver of growth.
Japan fell into a severe recession following the global financial crisis but clawed out of it in the spring of 2009. Since then its recovery has gathered steam, with GDP reaching an annualised five percent in the first quarter of 2010.