The Bank of Japan Policy Board unanimously agreed Tuesday to maintain the current virtually zero interest rate policy while revealing details of a new lending arrangement in dollars worth the equivalent of ¥1 trillion.
As a result, following the Policy Board’s two-day meeting, the BOJ will leave unchanged its credit and asset-purchasing programs totaling ¥65 trillion while keeping its key rates between zero and 0.1 percent.
“We must keep a close watch on a variety of uncertainties” over the global economy, including oil prices and the situation in Europe, BOJ Gov. Masaaki Shirakawa said after the meeting.
On the state of the global economy, the bank said conditions in the U.S. have shown a moderate improvement while the European economy “has stopped deteriorating.”
The BOJ, however, added that risks to the economic outlook include the high degree of uncertainty about overseas developments, such as Europe’s sovereign debt crisis.
“Careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations,” the bank warned.
Japan’s economy should return to a moderate recovery path as overseas economies pick up and disaster reconstruction-related demand gradually strengthens, the BOJ said.
The new dollar lending arrangement, part of a scheme to aid Japan’s economic growth, will provide loans of up to $1 billion to each financial institution at the six-month dollar London Interbank Offered Rate for a maximum of four years.
The deadline to apply for loans was set for March 2014.
The BOJ has been under pressure from the government to do its part in fighting deflation. On Tuesday, prior to the statement by the BOJ, Finance Minister Jun Azumi told reporters he expects the central bank to “take appropriate measures at the appropriate time.”
Tuesday’s inaction by the BOJ also came despite its most recent “tankan” survey earlier this month, which indicated that pessimism remains high among manufacturers, underscoring persistent concerns about the yen’s appreciation and Europe’s sovereign credit risk.
The Policy Board is scheduled to meet again this month, at which time it will release a long-term forecast on the economy and judge whether further monetary easing is required to meet its 1 percent inflation target.
On whether the target can be reached, Shirakawa said the BOJ will study economic factors closely and present its latest assessment later this month.
The BOJ will take strong stances “with the aim to reach the 1 percent goal,” he said.