Japan central bank keeps interest rate unchanged

TOKYO – Japan's central bank held interest rates just above zero Thursday and held off on new policy steps, resisting growing government pressure to escalate the fight against deflation.

The seven member policy board voted unanimously to keep the overnight call rate target at 0.1 percent. The Bank of Japan has maintained the super-low interest rate since December 2008 when it was cut from 0.3 percent.

It maintained its assessment of the economy, saying conditions are improving but that domestic consumption remains too weak.

Gross domestic product figures released Monday showed that Japan's economy beat expectations to grow at an annualized pace of 4.6 percent in the fourth quarter. The expansion helped the country fend off a surging China and keep its title as the world's No. 2 economy in terms of total output.

Japan has benefited from government stimulus measures at home and around the world, which have bolstered global trade and factory production. But a lasting recovery is in doubt if finance officials cannot reverse a vicious cycle of falling prices and wages.

Core consumer prices fell for the 10th straight month in December, declining 1.3 percent.

Ahead of the central bank's two-day meeting, government officials stepped up pressure on Bank of Japan Gov. Masaaki Shirakawa to do more. Finance Minister Naoto Kan called for inflation of 1 percent, which he said was the minimum level required for stable prices.

The central bank reiterated its commitment to fighting deflation, without introducing new policy steps.

"The Bank recognizes that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," it said in its statement. "To this end, the Bank will continue to consistently make contributions as a central bank."

Lower prices may seem like a good thing, but deflation plagued Japan during its "Lost Decade" in the 1990s. It can hamper economic growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.

sumber : http://news.yahoo.com/s/ap/20100218/ap_on_bi_ge/as_japan_central_bank