• The Associated Press

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The Bank of Japan kept monetary policy unchanged after a two-day Policy Board meeting ended Tuesday, effectively leaving interest rates at zero.

The central bank ended its ultraloose monetary policy last month but promised to keep interest rates near zero for some time, stressing the transition to higher interest rates will be gradual.

BOJ Gov. Toshihiko Fukui has suggested the zero interest rate policy will be maintained at least until it reduces the outstanding balance of current account deposits held by financial institutions at the central bank to the legally required level of about 6 trillion yen.

The bank’s previous policy — known as quantitative easing, which flooded the banking system with cash — was kept in place for five years to boost the economy. Central banks typically adjust interest rates to maintain noninflationary economic growth.

The BOJ also decided at the latest meeting to leave unchanged at 1.2 trillion yen its monthly purchases of government bonds.

The decision, in line with market expectations, underlined optimism about prospects for an economic recovery after more than a decade of stagnation.

Deflation has been a plague in recent years, with falling prices weighing on wages, corporate profits and growth.

But the world’s second-largest economy has recently been on the mend, with profits and consumer spending picking up and unemployment falling.

The economy grew at a solid annual pace of 5.4 percent pace in fourth quarter 2005.