Tokyo - Japan's central bank kept its super-low interest rates unchanged on Thursday and defied political pressure to take new steps to beat stubborn deflation in the world's second-largest economy.
The Bank of Japan held its benchmark rate steady at 0.1%, where it has been since December 2008, saying reversing a slump in consumer prices was a critical challenge.
"Japan's economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand," it said in a statement.
"The Bank recognises that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," the BoJ added.
The BoJ said it would "maintain the extremely accommodative financial environment", but refrained from announcing any new steps such as increased bond purchases.
"The Bank of Japan is sending the message that the country can get out from deflation without taking further steps to ease monetary policy," said Credit Agricole economist Susumu Kato.
Recovery remain fragile
The Bank of Japan has already slashed interest rates to just 0.1% and pumped trillions of yen into the financial system to boost the economy in the face of the worst downturn in decades.
But it has been criticised by Japan's government for not doing enough to ward off the threat of another deflationary spiral as seen after the country's economic bubble burst in the early 1990s.
Japan's Finance Minister Naoto Kan said on Tuesday that the government and central bank were aiming for a positive annual inflation rate of about 1%, referring to a specific inflation target for the first time.
Under pressure from the government, the BoJ had said in December that most of its policy board members favoured an inflation rate of around 1%.
But Bank governor Masaaki Shirakawa indicated on Thursday that the central bank does not have a firm inflation target.
"If we focus on price movements too much we could overlook imbalances in the overall economy," Shirakawa told reporters after the policy meeting.
Japan plunged into a year-long recession in 2008 as its exports collapsed due to a severe global downturn.
It returned to growth in the second quarter of 2009, but the recovery remains fragile with falling consumer prices, high public debt and weak domestic demand all major concerns for policymakers.
- AFP