Page last updated at 10:45 GMT, Friday, 18 December 2009

Japan promises to 'beat deflation'

Tokyo shoppers
Consumer prices fell at an annual rate of 2.2% in October

Japan's central bank has vowed to fight deflation as it announced interest rates would remain at 0.1%.

"It is a critical challenge for Japan's economy to overcome deflation," the bank said in a statement.

It added it "would not tolerate" annual price rises at, or below, zero. The consumer price index fell at an annual rate of 2.2% in October.

The central bank promised to keep interest rates low, but did not specify how it planned to tackle deflation.

"They're trying to show that they are going all out to stop deflation," said Adrian Foster from Rabobank International in Hong Kong.

"This is aimed at reinforcing that the Bank of Japan and the finance ministry are in sync and that they don't want a stronger yen because of deflation."

Other analysts said the central bank would not take further action just yet.

"For the time being they will stand back, and be prepared to do something", said David Cohen from Action Economics in Singapore.

"They will feel obliged to take some steps if the economic situation deteriorates, but right now it's a mixed picture," he added.

Japan's economic recovery is not looking as strong as first thought. Earlier this month the government agreed a 7.2 trillion yen ($81bn; £48bn) stimulus plan to prevent the country's economy from slipping back into recession.

While most other major central banks are beginning to roll back their special measures to boost the economy, the Bank of Japan recently announced plans to expand it.

Earlier this month, the central bank said it would inject 10 trillion yen ($114bn; £70bn) into the economy by offering banks cheap short-term loans, in order to encourage banks to lend more.



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