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Tokyo - Japan's central bank on Friday said the world's number two economy is "starting to recover moderately" and announced details of a scheme to encourage banks to lend in an effort to boost growth.
The BoJ lifted its economic assessment while keeping its key interest rate unchanged at 0.1%, the level it has held since December 2008.
Under government pressure to combat deflation ahead of upper house elections in July, the BoJ said it would offer cheap one-year, 0.1% interest loans to encourage banks to lend to companies in growth industries.
The move was an effort to strengthen "the foundations for economic growth," the bank said, adding that loans will be provided against pooled collateral.
The plan is still being finalised, Bank of Japan governor Masaaki Shirakawa said at a press conference. Reports earlier this week said the loans will be aimed at areas such as green business health and tourism.
In March, the bank doubled the amount of cash it will make available to banks, extending emergency steps taken in December by boosting its short-term loan facility to ¥20 trillion ($220bn).
Soaring welfare costs of a greying population and deflation continue to burden Japan, as falling consumer prices encourage consumers to defer purchases in the hope of further price drops.
"Japan's economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability," the bank said, adding it will maintain the "extremely accommodative financial environment."
The loans measure was "aimed at renewing the central bank's own effort to secure the country's sound financial system," said Yuri Yoshida, director at ratings agency Standard and Poor's.
"But it is still uncertain if it can directly help create a positive impact on the domestic economy."
In a generally upbeat assessment, the BoJ said that "the economy is likely to be on a recovery trend" helped by exports to emerging economies.
While Shirakawa said the impact of the eurozone crisis on Japan's economy was "limited" the bank said attention should be paid to the "effects of developments regarding fiscal conditions in some European economies".
Japan's exporters are nervously eyeing the eurozone debt crisis, which has left the safe-haven yen in demand against the euro, denting the outlook for Japanese exporters repatriating earnings and making their goods more expensive.
The bank's statement came a day after data showing Japan's economy grew an annualised 4.9% in the first three months of the year, a figure that was below analysts expectations.
- AFP
