The Bank of Japan kept its key interest rate unchanged and held off on new easing steps Wednesday, saying the economy is improving.
The BOJ Policy Board voted unanimously to keep its overnight call rate at a super-low 0.1 percent. The BOJ hasn’t tweaked that rate since December 2008.
The BOJ described the economy as “picking up” due to expanding overseas demand and stimulus steps. It expects moderate growth for the time being and the expansion to accelerate once the corporate recovery spills over to households.
It acknowledged, however, that momentum is still too weak to drive a self-sustaining recovery in domestic consumer demand.
The decision was widely expected after the key “tankan” report last week confirmed improving corporate morale. The survey of business sentiment showed that confidence rose for the fourth straight quarter amid growing faith in the global recovery.
The data affirmed the BOJ’s relatively upbeat view of the domestic economy, giving justification to stay put after loosening policy last month. Board members decided in March to boost liquidity by expanding a low-interest loan program amid political pressure to escalate the fight against deflation.
The central bank says it does not tolerate deflation though it expects prices to head south for the next couple of years. Deflation can hamstring economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It can also increase debt burdens.
Board members pledged to maintain an “extremely accommodative financial environment.”
The meeting was the first for new board member Ryuzo Miyao, a former economics professor who joined the central bank in late March. Comments at his first news conference suggested he would support additional easing steps.
Yoshihisa Morimoto, a power company executive, will fill the BOJ’s final vacancy on July 1.
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