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Bank of Japan keeps rates on hold Yen falls as BoJ holds base rates
(about 11 hours later)
Japan has kept its key interest rate on hold at 0.5% amid a recent slip in consumer prices. Japan has kept its key interest rate on hold at 0.5% after a recent slip in consumer prices.
The Bank of Japan deferred any action at its monthly meeting as concerns continued that the steady economic recovery might be under threat. At the same time, fresh data showing a slowdown in Japanese economic growth pushed the yen down to a three-month low against the US dollar.
Its decision came shortly after it was announced that economic growth had slowed to an annual rate of 2.4% in the first three months of 2007. The Japanese currency plummeted to 120.97 against the greenback as analysts speculated that rates would only rise again in the fourth quarter.
The Bank is under political pressure not to raise rates too quickly. Japan's last rate increase - to 0.5% - took place in February.
Japan kept interest rates at 0% for many years in an effort to combat deflation but raised them to 0.25% last year following signs of a pick-up in the economy. Rates were raised to 0.5% in February. Its previous decision to end its zero rates policy took place last year after signs of a pick-up in the economy.
Capital spending weak
The Bank of Japan's decision to keep leave rates unchanged at 0.5% came hours before government figures showed the economy had expanded at a slightly slower pace in the first three months of the year than analysts expected.
Weak capital spending, which had risen 2.3% in the previous quarter, pulled back economic activity from January to March 2007.
Growth came in at an annualised rate of 2.4% - still better than the 1.3% rise in the US economy over the same period.
But the fall in March's consumer prices has raised fears that deflation has not quite been eliminated.
This would not deter the central bank from hiking interest rates in the future though, the Bank of Japan governor Toshihiko Fukui said.
"I'm not saying we can raise rates any time when prices are falling," said Mr Fukui.
"But if we examine everything, it is possible to raise rates even when prices are falling."