The Bank of Japan said Friday it will maintain its key interest rate at around 0.1 percent, making clear its determination to hold the line against deflation.
The key interest rate has been kept at an extremely low level since last December, when the BOJ last cut the rate from 0.3 percent at the height of the global financial crisis.
Although the BOJ did not announce specific new steps, economists welcomed its clear intent to fight deflation.
"It is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," the central bank said in a statement. "The Policy Board does not tolerate a year-on-year rate of change in the CPI (consumer price index) equal to or below 0 percent," it said.
To end deflation and get the economy growing anew, the BOJ said it will continue to "make contributions as the central bank," and "will aim to maintain the extremely accommodative financial environment."
The BOJ also said it forecast the economy is likely to improve moderately until around the middle of fiscal 2010, after which it will gradually improve further as businesses benefit from rising exports and household incomes improve.
Nomura Securities Co. economist Minoru Nogimori suggested steps both the central bank and the government can take to combat deflation.
While the BOJ takes financial easing measures, Nogimori urged the government to come up with policies to stimulate demand through further deregulation and other means.