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Thu, Mar 18, 2010 - Page 10 News List

BOJ keeps rates at record low, boosts loan facility


Japan’s central bank yesterday doubled the amount of cash it will make available to banks while keeping interest rates at a record low as it tries to kickstart a stuttering economic recovery.

Under government pressure to help fight deflation, the Bank of Japan (BOJ) said it would extend emergency steps taken in December by boosting its short-term loan facility to ¥20 trillion (US$220 billion).

The facility offers three-month loans at 0.1 percent against collateral such as government bonds and corporate debt. However, markets had been expecting the loan duration to be extended to at least six months.

The move, announced after a two-day policy meeting, aims to bring a decline in longer-term interest rates — at which companies and individuals borrow to invest in new capital or to buy homes — to boost spending.

Japan’s economy last year emerged from its worst post-war recession thanks to rebounding exports, much of it to booming China, and on the back of government pump-priming measures at home.

The recovery, however, has been slower than expected. The government last week said GDP grew at an annualized 3.8 percent in the fourth quarter, less than the 4.6 percent previously estimated.

The BOJ yesterday held its benchmark interest rate unchanged at an ultra-low 0.1 percent, a level it has kept since December 2008, the height of the global financial market meltdown.

In its economic assessment, the bank said: “Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.”

Sticking with its earlier view, the BOJ said it “recognizes that it is a critical challenge for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability.”

“The bank will continue to aim to maintain the extremely accommodative environment,” it said.

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