BoJ leaves rates unchanged, holds off easing measures

The Bank of Japan on Tuesday left its key interest rate unchanged and maintained its view that the world's third-largest economy was picking up, but dashed hopes for fresh easing measures.

The central bank, which made the announcement after a two-day policy board meeting, said the vote to keep rates unchanged at between zero and 0.1 percent was unanimous.

Its decision not usher in more easing measures took a bite out of the Nikkei 225 index, which slipped into negative territory during afternoon trade, giving up a morning rally.

The news also boosted the yen. In afternoon trade it was at 81.38 against the dollar, from 81.80 before the announcement, while it also rose to 106.78 to the euro, from 107.38 previously.

"Tuesday's decision seems to have disappointed some short-term speculators, but for a majority of market economists it's not a surprise," said Satoshi Osanai, economist at Daiwa Institute of Research.

"The market's focus now is on how the BoJ would achieve its inflation target of 1.0 percent, so I hope governor (Masaaki) Shirakawa will give us clues about it," he added.

The bank's chief is scheduled to hold a press briefing later Tuesday.

Earlier in the day, the bank warned that Europe's sovereign debt problems and global commodity prices remained a concern, and added that the key US economy was "improving moderately."

"Japan's economic activity has shown some signs of picking up, although it has remained more or less flat," the BoJ said in a statement.

The battle against the stubborn deflation that has haunted the nation's economy for years would continue, the bank warned.

Falling prices cut into corporate profits, leading firms to slash jobs and put off capital investment that generates growth, while also encouraging consumers to delay purchases.

"The bank recognises that Japan's economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability," it said.

The statement added that the BoJ would "pursue powerful monetary easing, and will support private financial institutions in their efforts to strengthen the foundations for Japan's economic growth."

Also Tuesday, Japanese finance minister Jun Azumi said he hoped the central bank would "act appropriately" by reaching into its policy bag to help fuel economic growth.

"I believe this is an important month for us to build a solid base for the economy this year so it can make a further leap forward," he told a regular news briefing.

Last month, the bank boosted a loan programme by 2.0 trillion yen ($24.5 billion) to 5.0 trillion yen amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year's quake-tsunami disaster and flooding in Thailand.

And in February it said it would increase an asset purchase programme by 10 trillion yen to about 65 trillion yen, while it has also announced a one-year extension to a loan programme for banks in areas hit by the March 11 quake-tsunami.

The meeting Tuesday came amid efforts to fill two vacancies on the bank's policy board after Japan's upper house of parliament last week voted down the nomination of an economist who was not in favour of further monetary easing.

The country has seen a mixed bag of economic data lately, reporting Monday that it swung back to a surplus in February's current account, a key measure of international trade, but confidence among Japan's manufacturers remains weak.

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