BoJ vows to step up fight against deflation

December 18, 2009

, TOKYO, Dec 18 – Japan\’s central bank said on Friday it was vital for the world\’s number two economy to break out of deflation as it maintained its super low interest rates steady to fight consumer price falls.

The Bank of Japan maintained its assessment that the economy is gradually recovering from its worst slump in decades, as it held its benchmark lending rate unchanged at 0.1 percent, where it has been since December 2008.

"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," it said in a statement.

At the same time the Bank voiced increased concern about deflation, which hurts corporate profits and encourages some consumers to put off purchases in the hope of getting a lower price in the future.

In unusually strident remarks, the BoJ said that it "does not tolerate" falls in consumer prices.

"The Bank recognises that it is a critical challenge for Japan\’s economy to overcome deflation," the statement said, adding that that BoJ would "maintain the extremely accommodative financial environment."

Japan\’s core consumer prices fell 2.2 percent in October from a year earlier, marking an eighth straight month of drops.

The BoJ, under pressure from the government to step up the fight against deflation, decided earlier this month to pump 10 trillion yen (112 billion dollars) into the financial system through a new loan facility.

Japan\’s economy returned to positive growth in this year\’s second quarter after a severe year-long recession.

But the government reported last week that the world\’s number-two economy grew at a much slower rate than previously thought in the third quarter, re-igniting fears that the fledgling recovery could stall.

Japan\’s government recently announced a fresh economic stimulus package of 274 billion dollars, including 80 billion dollars in new spending, to ward off a potential double-dip recession.

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