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Last Updated: Thursday, 9 February 2006, 08:50 GMT
Bank of Japan keeps rates on hold
Japan shoppers
Consumer confidence is at a 15-year high in Japan
Japan's central bank has kept interest rates at zero following its latest meeting despite signs that years of falling prices may be coming to an end.

Core consumer prices rose by 0.1% for the second month in a row in December, but the Bank of Japan (BOJ) wants further proof that deflation has ended.

In its latest monthly report, the bank said prices were likely to keep rising as Japan's economic recovery continues.

Analysts think the bank will wait until April before changing its policy.

Curse of deflation

Recent statistics on Japan's economy have been good - industrial output rose for the fifth straight month in December, consumer confidence hit a 15-year high, the jobless rate fell to 4.4% and wages had their biggest increase in 18 months.

The Bank of Japan has had a very loose monetary policy for the last four years as it tried to encourage growth in the stagnant economy.

The country has been struggling to combat deflation, which hurts the economy by holding back demand as consumers put off buying goods in the expectation that prices will become cheaper.

Man pulling trolley stacked with yen banknotes
The Bank of Japan has been pumping cash into the economy

Its "quantitative easing" strategy has seen the Bank of Japan maintain interest rates at zero and pump money markets with excess funds in order to encourage lending.

This policy encourages businesses to borrow and invest money and consumers to spend more.

But if it is maintained for too long it could lead to high inflation if prices suddenly shoot up.

"The Bank of Japan seems to have become increasingly confident about the economy's strength and it probably has no concerns that declines in consumer prices will resume," said Izuru Kato, chief market economist at Totan Research.




SEE ALSO:
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Japan's economic recovery slows
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Japanese deflation appears to end
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Japan's foreign investments grow
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Domestic sales aid Japan's growth
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Japan's businesses more confident
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