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Japan leaves interest rate on hold amid recession

(Agencies)
Updated: 2009-02-19 14:33

TOKYO  -- Japan's central bank kept its key interest rate on hold at 0.1 percent Thursday, as widely expected, amid the country's sharpest slowdown since the 1974 oil shock. With plunging exports, climbing unemployment and an ongoing credit crunch, "economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being," the Bank of Japan said in its statement.

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The bank's policy board voted unanimously to keep rates unchanged.

At 0.1 percent, Japan's benchmark rate is one of the lowest among developed countries. The US Federal Reserve has cut its targeted range for its key rate between zero and 0.25 percent, a record low. Euro-zone rates are at 2 percent.

The decision comes after the government announced Monday that Japan's economy -- the world's second largest -- contracted at a stunning 12.7 percent annual pace in the fourth quarter, the biggest quarterly drop in 35 years.

With its key rate already so low, the Bank of Japan has little room to maneuver, and has expressed a reluctance to reduce rates to zero, where they were earlier this decade.

Instead, the central bank has focused on helping companies raise funds amid tight financing conditions.

It extended several emergency measures to boost liquidity on Thursday. Its operation to buy commercial paper, which is short-term debt firms use to pay everyday expenses, will now run through Sept. 30 instead of March 31.