The Bank of Japan unanimously decided to keep its monetary policy unchanged Thursday, despite worse-than-expected reports on May’s industrial output.

The BOJ decision to maintain its target for bank reserves at the central bank at 5 trillion yen came at its regular Policy Board meeting.

Upping that target further would almost certainly necessitate outright purchases of long-term state bonds, which the BOJ has long opposed.

It would also be taken as a sign that the BOJ is running out of cards to play, despite Gov. Masaru Hayami’s assertion that its current policy can adequately cover a wide range of economic scenarios.

Since March, the central bank has been pursuing an ultraloose policy in which overnight interest rates are pushed down toward zero by making sure banks maintain large reserves of surplus funds with the central bank.

Thursday’s decision was made just after government figures showed that industrial output declined for the third consecutive month in May, falling 1.2 percent from the previous month.

It also follows the recent release of government data showing that gross domestic product shrank during the January-March quarter, raising the probability that Japan is falling back into recession.

The technical definition of a recession is two consecutive quarters of negative growth.

BOJ asked to mull real interest rates

Economic minister Heizo Takenaka revealed Thursday that he asked the policy-setting board of the Bank of Japan to discuss real interest rates in deciding its monetary policy.

“It is necessary (for the BOJ) to consider real term interest rates,” Takenaka told a news conference after attending a meeting of the BOJ Policy Board.

He added that real interest rates — interest rates adjusted for inflation — may be higher than many people believe.

Japan’s economy is currently in the grip of deflation, meaning it is experiencing a continuous downturn in prices.

The Policy Board voted unanimously to maintain its strategy of quantitative monetary easing, defying political pressure to further ease its grip on credit.

Takenaka said the BOJ left its policy intact because the future course of the U.S. economy is unclear.

He said many are now projecting the U.S. economy will start to recover early next year, whereas previous forecasts had predicted a rebound toward the end of this year.

The latest projection is within expectations, Takenaka said.

Takenaka said he also explained the fiscal and economic policy adopted by the Council on Economic and Fiscal Policy last week, adding that policy coordination between the government and the BOJ is critical.

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